NTELOS Holdings Corp., Q4 2008 Earnings Call Transcript

Feb.27.09 | About: NTELOS Holdings (NTLS)


Q4 2008 Earnings Call

February 27, 2009, 10:30 am ET


Wes Wampler - Director, IR

Mike Moneymaker - EVP and CFO

Jim Quarforth - CEO and President


David Coleman - RBC Capital Markets

Ric Prentiss - Raymond James & Associates

Thomas Seitz - Barclays Capital

Batya Levi - UBS

Mike McCormick - J.P. Morgan


Greetings and welcome to the NTELOS' Fourth Quarter 2008 Earnings Conference Call. At this time all participants are in a listen-only mode and a brief question-and-answer session will follow the formal presentation (Operator Instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Mr. Wes Wampler Director of Investor Relations. Thank you Mr. Wampler you may now begin.

Wes Wampler

Thank you, good morning and welcome to the NTELOS fourth quarter 2008 earnings conference call. The topics for today's call include an overview of business activities and financial highlights for the fourth quarter and year 2008. Speaking on the call today will be James S. Quarforth, Chief Executive Officer of NTELOS and Michael B. Moneymaker, Executive Vice President and Chief Financial Officer.

We will begin with comments from Mike and Jim and then we will take any questions you may have. We ask that questions on this call be from current investors or analysts and that any media questions be later directed to Mike Minnis, our Director of Public Relations.

Before we continue, I would like to point out that certain of the statements contained in our earnings release and on this conference call are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those described. Please refer to the earnings release for a special note regarding forward-looking statements.

Also, in an effort to provide useful information to investors, our comments today include non-GAAP financial measures. For details on these measures, including why we use them and reconciliations to the most comparable GAAP measures, please refer to our earnings release on our website at www.ntelos.com or to the 8-K filing provided to the SEC.

With that, I will now turn the call over to Mike Moneymaker, CFO of NTELOS.

Mike Moneymaker

Thank you, Wes, and good morning. We are pleased to announce fourth quarter 2008 operating revenues of $140.6 million, operating income of $31.5 million and net income of $6.4 million, or $0.15 per share.

We are also pleased to announce the declaration of a quarterly cash dividend in amount of $0.26 per share to be paid on April 13, 2009 to stockholders of record on March 19, 2009.

Operating revenues, operating income, net income, and earnings per share for the year ended December 31, 2008, were $539.8 million, $119.5 million, $47.2 million, and $1.12 per share on a diluted EPS basis, respectively.

Adjusted EBITDA was $56.5 million for the fourth quarter of 2008 and $227.1 million for the year ended December 31, 2008, increases of 13.9% and 11.9%, respectively, over the comparable periods of 2007.

Looking next at our key operating performance metrics. For comparability purposes the following 2008 to 2007 comparisons will be based on the pro-forma results and metrics for the periods prior to April 1, 2008, each adjusted to reflect the changes in gross versus net reporting of handset insurance revenues and cost as a result of the previously disclosed new contracts for such services that went into effect on April 1, 2008.

Please refer to the earnings release and Form 10-K and previously filed Form 10-Qs for actual results for the periods and further discussion on this change in gross versus net reporting.

Our pro-forma year-over-year increase in wireless subscriber revenues was 9% and 11.4% for the fourth quarter and year end 2008, respectively. This growth was achieved through subscriber growth of 28,213 net adds and pro-forma total ARPU growth of $1.01 year-over-year driven by continued growth in ARPU.

We were pleased with the strength in gross adds during the quarter. As total gross adds were 48,964 and postpay gross adds were 26,076, increases of 10.4% and 24% respectively over the fourth quarter 2007 gross additions.

Our pro-forma total and postpay ARPU for fourth quarter 2008 improved $0.68 and $2.37 respectively over the comparable ARPU for the fourth quarter 2007. These improvements reflect continued growth in data ARPU driven by increased sales of smart phones and air cards which represented 21% of our postpay gross additions in the second half of 2008.

CPGA was $380 for the fourth quarter of 2008 as compared to $373 for the third quarter of 2008 and $336 for the fourth quarter of 2007.

As mentioned earlier we continue to see strong growth in sales of smart phone and air cards since our launch of EV-DO high speed data offerings. The increase sales of smart phones and air cards have resulted in the higher CPGA costs since the launch of EV-DO offerings in the second quarter of 2008.

However, continued growth in the sales mix of these devices, yields growth in gross additions and ARPU in 2008 and to continue to drive data ARPU growth in the future.

CCPU was $34.22 for 4Q '08 an increase of 6.5% over pro-forma CCPU for 4Q '07. Pro-forma CCPU was $32.27 for the year 2008 an increase of 5.1% over pro-forma CCPU for 2007.

These increases reflected success of our national no-roam product which contributed to higher incollect costs of $6.2 million and $25.4 million for 4Q '08 and year 2008 respectively as compared to $5.5 million and $20.4 million for 4Q '07 and year 2007 respectively.

Retention costs, net of related equipment revenues from existing customers, were $3.4 million 2% decrease from 4Q '07 and $11.1 million for 2008 a 7% decrease from the year 2007.

Wireless bad debt expense was 3.8% of wireless subscriber revenues for 4Q '08, as compared to 4.5% for 4Q '07.

Wireless bad debt expense was 2.8% of wireless subscriber revenues for the year 2008, as compared to 3.2% for the year 2007.

CCPU increases also reflect the costs from the addition of 160 new cell sites in 2008 and higher network cost associated with the additional backhaul cost associated with new T1s added to cell sites upgraded to EV-DO Rev A.

Total access and cell site expenses grew from $9.5 million in 4Q '07 to $11.9 million in 4Q '08. reflecting the impact of the new cell sites EV-DO upgrade an additional network traffic. For the year 2008, the same cost were $42.6 million as compare to $36.4 million for 2007.

Looking next at wireline. Our wireline segment recognized adjusted EBITDA of $17.5 million in 4Q '08 versus $16.7 million in 4Q '07 and $69 million for the year 2008 versus $65.3 million for the year 2007.

Adjusted EBITDA for a competitive wireline segments was $25.3 million for the year 2008, a 21% increase over 2007 driven by growth in wireline strategic product revenues which grew 11% over 2007.

We offered a voluntary early retirement plan to eligible employees within our wireline segment that resulted in the reduction of 22 employees effective June 30, 2008, for which we recognized the cost segment in the second half of 2008.

Looking next at our liquidity. Adjusted EBITDA, less expenditures for property, plant, and equipment for the year 2008, was $94.6 million up from $93.4 million for the year 2007.

Our capital expenditures were at $132.5 million for the year 2008 as compared to $109.6 million for 2007. Total incremental capital expenditures for the EV-DO upgrade were approximately $35 million and approximately $27 million 2008, and 2007 respectively. And only $3 million of incremental capital expenditure related to our planned EV-DO upgrade remains to be same in 2009.

Cash provided by operating activities was $185.3 million for the year 2008 an increase of 29% over 2007 cash flows of $143.9 million reflective of record levels of adjusted EBITDA and positive changes in working capital.

Our 2009 guidance for cash income tax payment is expected be between $16 million and $20 million a reduction of $16 million from the previous guidance issued in January 2009 reflecting the projected impact of the American Recovery and Reinvestment Act of 2009 that extended the accelerated tax depreciation adoption for excess place and service in 2009.

Our ratio of total debt at December 31, 2008 for adjusted EBITDA for the year 2008 was 2.68 to 1 down from a ratio of 3.03 to 1 as of December 31, 2007.

I am also pleased to report the total debt net of 65.7 million of cash on hand at December 31, 2008 was $542.2 million. At $542.2 million this represents a ratio to adjusted EBITDA for the year 2008, up 2.39 to 1 down from 2.76 to 1 as of December 31, 2007.

With that let me now turn the discussion over to Jim Quarforth our CEO who will provide an update on our latest business and operational development.

Jim Quarforth

Thank you Mike. As Mike has pointed out we had another solid quarter posting an adjusted EBITDA of $56.5 million and finishing the year with adjusted EBITDA of $227.1 million with margin expansion in both our wireless and wireline businesses. We are very pleased with these results particularly in this economic climate.

Further we are optimistic entering 2009 with good momentum many catalyst for growth coupled with a strong cash position below that ratio and the ability to continue to grow without the need to access the capital markets.

I plan to discuss our EV-DO and cell site deployments activities and our retail operations, the [Sprint] wholesale revenue and an update on the first quarter 2009.

2008 was a year of incredible accomplishment with over 833 cell sites converted to EV-DO Rev A and 150 cell sites added to our coverage. We ended the year with 70% of our cell sites EV-DO capability.

In the fourth quarter we provided EV-DO to four new markets including Danville and Martinsville, Virginia and Bluefield and Beckley, West Virginia.

We also completed part of our upgrade to EV-DO in both the Richmond and Norfolk, Virginia markets. Richmond and Norfolk our largest markets will be completely upgraded in the second quarter 2009. We expect to see nice productivity in smart phone and air card penetration and the associated data revenue from these market launches during 2009.

We finished 2008 with 84 company retail stores with an increase of 9% or 12% during the year. The growth in this distribution channel has further strengthened our differentiated retail selling strategy. We currently plan to further expand this distribution channel by an additional six to eight stores during 2009.

We continue to be pleased with the demand for EV-DO products in the markets we have launched, as evidenced by the $2.80 or 49% increase in postpay data ARPU last year. This high speed service offering has added strength to our postpay offerings and sales effectiveness.

Our data take rate of gross postpay additions increased to 55% in the fourth quarter, take rates for smart phones and data cards were 19% in the fourth quarter.

We introduced 6 new handsets and two new smart phones during the fourth quarter. And new handsets introductions during 2008 have provided significant strength to our postpay offerings resulting in increased postpay sales in the third and fourth quarter of 2008 and continuing into 2009.

While churn was higher in the third and fourth quarter due to economic conditions, we have seen consistent increased sales as a result of our value and market position and many catalyst for growth including EV-DO network capability, extended coverage, entry into new markets, more retail distribution and better handset selection. The increased sales have continued into 2009.

Our revenue from Sprint wholesale relationship grew $8.1 million or 34% year-over-year and $5 million or 18% sequentially from the third quarter, 2008. This increase is primarily from increased usage from travel data as a result of the EV-DO implementation and increased coverage in the wholesale area.

Travel data revenue grew $9 million or 347% year-over-year and $4.8 million or 72% sequentially from the third quarter of 2008.

Voice revenue, including home and travel, have increased approximately 3% year-over-year. We expect to see continued increases in our wholesale revenues to the first half of 2009 as a result of the EV-DO market turn up in the fourth quarter 2008 and the expanded coverage completed last year.

While we expect continued increases in data usage in to the future, our travel data rate will be rescheduled July 1st, based on 90% of Sprint data revenue yield. We anticipate the new rate which is reflective of the revenues and volumes from the EV-DO network will be significantly lower than the current travel data rate. As a result, and reflected in our 2009 guidance, we expect our billing will drop to the $9 million minimum for the second half of the year.

We continue to encourage by the data usage growth rates and anticipate data will continue to be accounted for future growth.

In addition to the EV-DO deployment the substantial network expansion will be for wholesale revenue growth. As evidenced by our fourth quarter annualized revenue per cell site of $178,000 compared to $160,000 in the third quarter for an increase of 11%.

We are seeing similar characteristics in the first quarter of 2009 that we saw in the last two quarters. First our churn levels continue to be at similar levels as the last half of 2008.

Second, we also continue to see higher sales similar to the last two quarters. While the fourth and first quarters are seasonally higher prepay sales quote as we have definitely seen a higher mix of postpay sales during as compared to previous years.

We are clearly receiving more consideration for postpay customers due to our value proposition in the market as well as our EV-DO capabilities.

In January we introduced the capability to flash a customers phone so they can use their phone on the NTELOS network.

This will save the company's subsidy costs while allowing the customer to enjoy the best value in wireless. As I mentioned earlier we finished 2008 with a solid quarter, we are very pleased with finishing the year with an EBITDA of over $227 million or 12% growth, we are also pleased with our free cash flow which has allowed us to continue to invest in our business and also increase our dividend level last year by 24%.

As we look at 2009, we are very optimistic about our ability to demonstrate good growth in a challenging economic environment. As we reported on our January 29, guidance release, we expect 2009 to the year of substantial free-cash flow growth for the projected growth range between 25% and 35%.

Our position as a value player will continue to give us more consideration with customers. Looking for a quality network at the right price.

Our work to implement EV-DO across software market in 2008 has already paid nice rewards and acquiring new postpay customers increasing our postpay data ARPU.

Our management team is seasoned and has a track record for consistently performing well in difficult and good times.

Our financial results last year are a confirmation of the catalyst we have for growth into the future. Our investments in network expansion in the past few years and the implementation in EV-DO last year have and will continue to provide nice growth for both our retail and wholesale wireless businesses.

Our retail business continues to see strength in customer addition, growth in data penetration, and data ARPU.

This growth is further supported by increased retail distribution province improved handset selections and improved product offerings due to our EV-DO capabilities.

And wireline business is well positioned to continue its double digit revenue growth as competitive strategic products such as Metro Ethernet, Integrated access, and inter-carrier services. The ILEC has achieved enviable DSL penetration currently at 46% which is the best defined offsetting line loss revenue.

Our long term strategic investment in IPTV are showing impressive results with over 22% penetration of homes passed into first 15 months was 75% of the customers taking the triple play.

We believe our catalyst, our market position and our seasoned management team will provide our company the unique opportunity to grow our business in 2009.

At this point, we will now take questions and ask the operator to give instructions.



Thank you. (Operator Instructions) Thank you. Our first question is coming from David Coleman of RBC Capital Markets.

David Coleman - RBC Capital Markets

Great. Thanks a lot. You mentioned that smart phones and air cards were about 90% of I guess gross subscriber additions in the fourth quarter. Can you provide the total percent of the total handsets and devices in service that are smart phones and air cards I have a follow-up for that?

Mike Moneymaker

As far as the mix we ended the quarter with about 8% of the mix as smart phone and air cards.

David Coleman - RBC Capital Markets

Okay and then I guess from, as we look at your cost to deliver magnitude of data over your EV-DO network. And given the step down in the travel data rate through the Sprint wholesale contract. How that cost to deliver and megabyte data compares to the revenue that you would be receiving from Sprint under that contract when the rates do step down?

Mike Moneymaker

Sure I mean we are obviously familiar with the cost restoration of both the data megabyte in a voice minute. I think what's important here is that we take travel data for example. We will draw on our 90% of Sprint's data revenue yield and it's important going forward now that we have, December when we have 100% EV-DO capability it's important from a wholesale relationship that our customer has ability to generate a margin. And that’s similar to what we have done previously with our travel voice which is also set at 90% of the revenue, voice revenue data yield. So we are very comfortable with the cost structure there and the associated margin and more importantly with that variable structure that we have had in the past it really provides an incentive to our wholesale customers that continue to grow that market.

David Coleman - RBC Capital Markets

Okay thank you and then just as far as the credit facility you mentioned in the past the RP basket and the possibility of amending that to a value to increase the dividend any work down there that you can talk about?

Mike Moneymaker

No changes as far as anything in place today really is kind of a project for 2009 is just to continue to evaluate the market and to the extent there are opportunities to address I think the restricted payment basket I think the big picture the credit facility itself I think we would look into those and pursue those. I think right now I think the market is such that it's, could you go out and do something I think the answer is yes I think it just would be very expensive today and given the restricted payment basket gives a sufficient flexibility to increase the dividend as we have done so.

We really do not see that as a constraint today and our preference is to continue to watch and monitor the market and hopefully seek the market conditions that would result in our less costly amendment or revision at a future day.

David Coleman - RBC Capital Markets

Great. Thank you.


Thank you. Our next question is coming from Ric Prentiss of Raymond James.

Ric Prentiss - Raymond James & Associates

Hey, good morning, guys.

Mike Moneymaker

Hi, Ric.

Ric Prentiss - Raymond James & Associates

A couple of question, I apologies I miss the beginning of the call, but you talk to wireless ARPU a little bit what you are seeing there was down a little bit, versus what we were looking for but still pretty strong on the local side. As far as what's happening to voice versus what's happening to data? Yeah that’s the first question.

Jim Quarforth

Yeah, good question Ric. First of all, historically you typically see a dip compared to fourth quarter because most of your adds in the fourth quarter come in the last several weeks, so you have mismatch if you will on the customer additions to the revenue. But if you go back in time you will see that pattern. We did if you look at year-over-year postpay ARPU actually went out $2.37 and that's on a pro-forma basis with the new handset agreement, insurance agreement.

And then on a blended basis, we went up about $0.68 year-over-year again from a pro-forma basis. We have had as we reported before pressure on the prepay ARPU started in plus really have been throughout 2008.

Coming from two different sources one you may recall we had actually lowered our prepay rates structure back in late 2007 as a competitive repositioning effort. And then secondly, I think in the third and fourth quarter you saw some pressure on prepay due to the accounting where people want to keep their handsets but they are looking to reduce their cost a bit. But we are very pleased with the rift in data ARPU that $2.80 on postpay year-over-year which is about a 49% growth rate.

Ric Prentiss - Raymond James & Associates

That seems pretty nice in this though competitive environment seeing some upward movement on the ARPU side. Data, where do you see data heading over the next couple of quarters to couple of years, can you get up to or what will take to get up to Sprint's level I think on the CDMA side Sprint as they are doing about $18 worth of data ARPU?

Jim Quarforth

I mean clear we think that's where the opportunity is and I think if you look at the increase in our postpay sales as percentage of a mix in the third quarter, fourth quarter and continuing into the first quarter or getting more consideration then we have ever gotten before because of the availability of smart phones and EV-DO network.

Its even back for the last three or four, five years in comparison to where we are today from a network capabilities standpoint. This is the first time that this company has been at par or in better position then our competition from a capability standpoint. So we are incredibly excited about that and we are seeing again as I mentioned the customer consideration as a result of that.

It's allowed us also to bolster our business-to-business channel and sell more into that channel which is the channel that really did not start developing until we got into data. Clearly the Sprint has a big enterprise business. So if there is an element of their data ARPU that is to me more difficult for us to achieve. But clearly we are expecting to see an acceleration of data ARPU throughout 2009.

Mike Moneymaker

And again as a reminder Virginia East, Richmond and the Hampton rose market, we turned up about half of the cell sites the EV-DO Rev A in November. So again over half of recovered costs. We have not been operational under EV-DO Rev A network but for less than two months. And the remaining half of that model turned up in the second quarter. So we are pretty bullish that, when your largest two markets had not turned up EV-DO for full quarters work that we have had nice growth in data ARPU and that’s really without the benefit of our most urban markets that we have.

Ric Prentiss - Raymond James & Associates

Its great, thanks and my final question is right on that same point. There was some speculation on Leap coming to town in the Virginia East area. Our job search sector we did not see in this pretty benign. Just to engineers that are doing some work may be in the area, what have you seen as far as leap in the Richmond and Norfolk kind of area what you think your time to entry would be?

Jim Quarforth

Sure I am not sure its changed much from what we reported before Ric, as you pointed out there is some structuring work taking place in that market, but clearly once Leap decides that they want to enter that market. It typically takes about 12 to 18 months to actually build a market.

So you are clearly looking at some time in 2010. If they were to start today and obviously we have indicated we have done some things in the past to reposition our prepay business, we did some reprising of our products back in late 2007.

We do have a new prepay billing platform that's going in place in the third quarter of this year. That gives us more capabilities and then we have some other things that we are working on in preparation to compete very effectively with Leap of anyone else that comes in the market with a similar product.

Ric Prentiss - Raymond James & Associates

Great. Thanks guys. Have a good weekend.

Jim Quarforth

Thank you.


Thank you. Our next question coming from Thomas Seitz of Barclays Capital.

Thomas Seitz - Barclays Capital

Yeah. Thanks for taking the question. A lot of the, talking about potentially an acceleration in consolidation. And I know that tax agreement does not end till 2010, but if that M&A activity steps up, are there things that you can do in 2009 to get ready to make that asset available for sale if an offer that might be attracted to you comes along?

Mike Moneymaker

Yeah, I mean, I think what you are referring to is there is punitive corporate tax if the company were to split. Its assets between wireless and wireline that tax, because the profit goes away in May 2010. We clearly operate its two business units today, and they have separate organizations and that's the only thing that's common in our support systems but even within that they are somewhat separated. You know, clearly, its something that we are watching. I would also tell you that there is, it is almost a little bit of trend back towards blended companies as well.

So I think one of the things we are pretty excited about here is that this company has one its performing very well its incredibly healthy performing well and both wireless and wireline and we have a lot of different alternative available to us. And so we are going to be looking at what's in the best interest of our shareholders' long-term and that's consolidation have its continue to organic growth or acceleration of our own business development, those are things we will be looking at.

Thomas Seitz - Barclays Capital

Okay, great. Thank you very much.


Thank you our next question coming from Batya Levi of UBS.

Batya Levi - UBS

Thanks a lot, I wanted to ask you about your guidance for revenue growth, I guess one word is out there is that you have an optimistic view for 2009 given the weak economic environments we are in? Can you give us a sense of the strengthening growth as we saw in the fourth quarter continues in through January and February this churn trying to come down. And on the ARPU side, you talked about the potential data acceleration. But can you give a little bit more color on how voice ARPU is holding up and any change in the [family plan] that you see. Thanks a lot.

Jim Quarforth

Sure, yes, I guess we did provide guidance on the revenue at the end of January, we are very comfortable with that guidance and we think that, that’s going to be supported from a lot of different areas as you mentioned both customer additions and ARPU. We have seen churn stay at similar levels in January that the, we are in the third and fourth quarter, which obviously is coming from the economy.

I think the real good news here is that we not only have seen more growth sales that has allowed us to meet our net numbers and show growth but also the sales have included a much higher percentage of postpay which as you know are of much higher value customers and then approximately 19%, 20% of postpay sales are taking the smart phones or data cards which has allowed us to grow our data ARPU.

So, we are very pleased with what we are seeing there we think that we certainly have the tools available to us to mange through a difficult economy and meet our guidance numbers.

Batya Levi - UBS

And on the voice ARPU side do you see any pressure there?

Jim Quarforth

We are seeing the pressure on the prepay and we, of course we saw some pressure there that was we designed in ourselves if you will at the end of 2007 when we put out some new products to better position and competitiveness of the prepay product. So as overtime as you have more and more folks converting to that new product you put some downward pressure on that.

In addition, the third and fourth quarter we have seen some pressure on that prepay product as a result of again folks who want to keep their wireless phone with a need to reduce their cost. So, we have seen a little pressure there. Postpay seems to be holding up and we are very pleased with that and we are also and pleased with the take rates and growth of the ARPU.

Mike Moneymaker

Batya, just to add, I think when you look at our guidance on revenues do keep in mind that if you are comparing 2007 to 2008 the handset insurance reset was between $11 million and $12 million of grossed up revenue and expense in '07 and $2 million to $3 million in the first quarter that went away on and we reported starting April 1, '08 on net basis. So when you look at our reported results, for '07 to '08 keep in mind that you have a significant drop off due to the netting of those revenues starting April 1.

You have '08, '09, you have except in one quarter, you have a truer growth pattern. Another good example of that is I think some people are looking at our ARPU as being down and as we have stated here on the call our reported ARPU was down based on the netting of the gross versus net of this handset insurance. But as we have said ARPU is was up. Its improving, it's up year-over-year, it's up quarter-over-quarter and so we are pleased with that growth but one must be careful to make sure that looking at the pro-forma results there in light of the change in the method of reporting.

Batya Levi - UBS

Right. And just one follow-up on margins. Do you think we can expect wireless margins to move up to 40% again with the strength we are seeing in the ARPU and in the first half of the year or do you expect this higher mix of smart phone sales, the pressure that may be initially and then have a more backend loaded for margin expansion for the year?

Mike Moneymaker

I think the certainly in long-term we would expect to see margin expansions the offsetting items or the pressures on that in 2009. It's somewhat similar to what you saw on the last half of 2008 that is that one you are going to have the higher run rate of the year, T1 expense associated with EV-DO and as we ramped up and added T1 each cell site during 2008.

We, that's a compounding effect, so for example, if you were to annualize the excess expense of the fourth quarter of 2008 versus fourth quarter of 2007 there is about a $6 million delta there.

That you are going to in effect have to lower in 2009. Additionally, the more successful we are in penetrating the market in smart phones and air cards there will be some initial pressure there but obviously most of those. The offsetting good news is that we are seeing very nice growth in penetration numbers which is going to move our revenue and our ARPU up. So, it’s really a good problem to have but it will take some time.

Batya Levi - UBS

Okay thanks a lot.


Thank you (Operator Instructions) Thank you your next question is coming from Mike McCormack of JP Morgan.

Mike McCormick - J.P. Morgan

Hi guys thanks you have talked about some of the initiatives that you might put into place to combat some of this or if you need prepaid players could you just give us sense for your thoughts on how we should be thinking about longer term ARPU trends and then. Secondly the travel data piece seems to be a tremendous growth driver obviously, I was just wondering what you are thoughts on the process that unfolds here, EV-DO rolled out obviously and it's an opportunity for growth. But Sprint continues to loose pretty good numbers of subscribers so I'm just thinking about how that should trend over some period of time? Thanks.

Jim Quarforth

Sure yeah regarding repositioning any plans that we might have from a competitive standpoint and ARPUs. Clearly as you, the expectation is that as you have more aggressive pricing you would have an expectation to have higher volumes and that's kind of the unlimited model that you see out there. We think we are positioned very well today realize that we have about 29% of our customers are prepay. So really the universe that they are at risk are based out of that 29%.

On Sprint, clearly of course a lot of the customers they have lost and then on iDEN side, we actually, as we reported year earlier our voice revenues have actually gone up in our market to over 2008 which would suggest that they are holding their own and may be even improving a little bit in our particular markets.

Now nationwide if they continue to loose CDMA customers that can have some impact on your travel revenues both voice and data. I would tell you that what their hybrid phones that they have out there now that operate both on CDMA and iDEN network is actually very catalyst for additional usage and we would expect that to be somewhat of an offsetting element to the revenue stream.

So if you think about where Sprint has gone nationwide over the last years from a customer perspective and relate that to our revenues. Our revenues have grown so I think we are pretty comfortable where our guidance is today and we would expect to execute on.

Mike McCormick - J.P. Morgan

Great thank you.


Thank you our next question is coming from Ric Prentiss of Raymond James.

Ric Prentiss - Raymond James & Associates

Hey guys I can't wait for the earning season and so I will keep asking questions. Questions and couple of clean up ones. LTE has been a topic throughout the whole earning season Verizon, were accelerating their trials announcing their line what are your thoughts about the migration path, were you beyond Rev A, LTE needed is it something in your study period just what are your thoughts on LTE?

Jim Quarforth

Sure, its certainly something we are looking at Ric, historically if you look at our markets, our markets are typically markets that were a new technology from the larger vendors do not come in these markets until held latter. They are focused on, the New York and Boston and LA. Which really gives an opportunity to evaluate what's being rolled out, what are the take rates to the customers, are they willing to pay up for the additional of the and further devices.

So we really benefit from being quick followers so we will continue look at it. Clearly there is more speed in Rev A then and what you turn up Rev A you have the ability to continue to increase speed by adding additional backhaul capacity.

So that's a natural path for us to go first before we make the investment in the LTE I think we are several years off before we would be looking and making that investment.

Ric Prentiss - Raymond James & Associates

On both the wireless side and the ILEC side what are your initial thoughts on the overall broadband initiative from the government eligibility process that you might go through, any thoughts about applying for some of that SIM money?

Mike Moneymaker

We certainly are aware and had internal meetings we just had a board meeting yesterday, spoke to the board about it, I mean at this point we really are in a mode of watching it carefully, watching developments really need more clarity as to what is underserved or un-served market what does that mean how the ramp program, the different programs work and way the brands, what will the application process be.

But certainly we serve a rural market. And there could be opportunities there to improve upon the qualities of broadband service that we can provide in our regions. And perhaps in areas of growth where to date the cost on our less populated area might have met, as its underserved or un-served. So we are watching it carefully but there really is just not enough clarity yet to know what that may be in our region.

Ric Prentiss - Raymond James & Associates

And then do you guys still have some I think WiMax spectrum, does Clearwire have in your markets and is strengthen one to may be have some discussions on WiMax network in your areas?

Mike Moneymaker

To our knowledge Clearwire does not have any, we actually sold them some spectrum in Richmond market couple of years ago. But you are correct we do have, do have spectrum that could be used for WiMax in our market. Certainly that’s something that I think Sprint and Clearwire are looking at, however these markets are somewhat rural in nature. Again, they can may be sometime before, you are going to see that application here.

Ric Prentiss - Raymond James & Associates

Sure. As Sprint thinks further the travel aspect of a mobile WiMax network, it might kind of fit into your providing the 3G data, 2G voice might be something of interest in that mode?

Jim Quarforth

Yeah. I mean clearly, that's something that has Sprint and any other carrier had an interest in, we would love to build that in wholesale that network to them. And that's what we have done historically. We think it's a good business model and we like earnings, like building networks and something we will be continuing to evaluate.

Ric Prentiss - Raymond James & Associates

Great. Thanks guys.


Thank you. There are no further questions at this time. I would like to hand the floor back over to management for any closing comments.

Wes Wampler

Thank you. As a reminder, a replay of this call and an archive of the audio webcast will be available. Please refer to our Investor Relations website for details. Please also feel free to contact us any time with questions. Media should contact Mike Minnis at 540-946-7290. Investors, please contact me, Wes Wampler, at 540-949-3447. Thank you again for joining us this morning and this concludes our call.


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