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NTELOS Holdings (NASDAQ:NTLS)

Q4 2012 Earnings Call

February 28, 2013 11:00 am ET

Executives

Jeffrey Goldberger

James A. Hyde - Chief Executive officer, President and Director

Stebbins B. Chandor - Chief Financial Officer, Treasurer and Secretary

Conrad J. Hunter - Chief Operating Officer and Executive Vice President

Analysts

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Philip Cusick - JP Morgan Chase & Co, Research Division

Kevin M. Roe - Roe Equity Research, LLC

Barry M. Sine - Drexel Hamilton, LLC, Research Division

John C. Hodulik - UBS Investment Bank, Research Division

Yehuda Miller

Operator

Good day, and welcome to the NTELOS Q4 and Full Year 2013 Earnings Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Jeffrey Goldberger, Mr. Goldberger, the floor is yours, sir.

Jeffrey Goldberger

Thank you, Mike, good morning, and welcome to the NTELOS fourth quarter and full-year 2012 earnings conference call. Again, my name is Jeffrey Goldberger and I'm with KCSA Strategic Communications, Investor Relations Counsel to NTELOS. We hope that you've had an opportunity to review the earnings release we issued earlier today. We also hope that you downloaded the accompanying presentation, which can be accessed on the company's website within the Investor Relations section.

Turning to Slide 2. As a reminder, some of the matters we will discuss on this call are forward-looking, including full year guidance. You should keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements and that such statements are not a guarantee of our future performance. Such risks and uncertainties include, but are not limited to, general economic conditions and those factors set forth in today's earnings release and discussed under the risk factors section and our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. During today's call, we will reference certain non-GAAP financial measures, which we believe provide useful information to our investors. We include reconciliation of those measures where appropriate to GAAP in our earnings release or on the Investor Relations section of our website at ir.ntelos.com. As always, NTELOS assumes no obligation to update the information presented on this conference call. Lastly, NTELOS recently launched an investor relations app available for both iOS and Android devices. We encourage you to visit both the Apple App Store and the Google Play to download your NTELOS mobile IR application.

Turning to Slide 3. Representing NTELOS today are Jim Hyde, Chief Executive Officer; Steb Chandor, Chief Financial Officer; and Conrad Hunter, Chief Operating Officer. Let me quickly outline the agenda for today's call. Jim will begin with a quick overview of our results, Steb will then take you through the financial details, including the income statement and balance sheet, along with important operational metrics for the 3 and 12 months ended 12/31/2012. Jim will conclude the call by offering an operational overview, as well as provide initial guidance for fiscal 2013, as well as some thoughts about 2014. Management will then take your questions. With those comments complete, allow me to turn the call over to Jim Hyde.

James A. Hyde

Thanks, Jeffrey, and thank you, everyone, for joining us on today's call. We are extremely pleased with our results for the fourth quarter, which, as you'll see, highlight the continued progress we've made in our business. Thanks to a focus on improving our products distribution and brand image, we have continued to deliver increasingly positive results and execute on our strategy to not just turn around but grow the retail side of our business. Before reviewing our operational results, I'd like to call your attention to a specific data point that highlights our progress. As you all know, retail has a market share gain and as a wireless carrier, if we want to scale our business, we must first gain share. During the fourth quarter, we achieved positive net ports of nearly 6,000, marking the sixth consecutive quarter of positive results. For the full year 2012, net ports were 17,612 compared to a net gain of fewer than 1,000 in 2011. Put another way, we're winning the switchers game, and when you consider wireless subscriber penetration is nearly 100% throughout our footprint, and when you further factor in that we're taking share from national carriers, I think that's an especially impressive result. We're extremely encouraged by that progress and we expect to build on the momentum throughout 2013. At the same time, we continue to generate solid financial performance in our wholesale business. In 2012, wholesale revenue was $168.9 million, up 17% over 2011. The jump has been driven by increased usage on our network, particularly on the data side under our Strategic Network Alliance with Sprint. After Steb provides a review of our financial results, I'll come back to provide additional color on our operations and strategy, then conclude with a review of our full year guidance. With that, I'll turn the call over to Steb.

Stebbins B. Chandor

Thank you, Jim, and good morning, everyone. This morning, I will provide a brief review of our results and key operating metrics for the fourth quarter and full year 2012. Please note that I'll reference the financial results as reported in our earnings release filed earlier this morning, and in our Form 10-K, which we expect to file shortly.

Turning to Slide 4. For the fourth quarter, operating revenues were $117.4 million, an 11% increase compared to the same period last year. For the full year 2012, operating revenues were $454 million, up 7% from 2011.

Turning to Slide 5, retail revenue for the quarter, which includes subscriber and equipment revenues, increased to $75.1 million, the highest level since the first quarter of 2010. The $75.1 million figure is up 6% from the third quarter of 2012. This increase primarily reflects our fourth consecutive quarter of growth in subscriber revenue driven by both a larger subscriber base and higher ARPU. For the full year 2012, retail revenue was $285.1 million, up 3% from 2011.

Turning to Slide 6. For the fourth quarter, wholesale and other revenue increased 7% year-over-year to $42.2 million compared to $39.6 million for the same period in 2011, driven by continued growth in revenues from our Strategic Network Alliance agreement with Sprint. For the full year 2012, wholesale and other revenue was $168.9 million, up 17% from 2011.

Turning to Slide 7. As a reminder, we have a data rate reset dispute with Sprint, which remains unresolved. At the end of the third quarter, we noted that there were reasonably possible outcomes of the dispute that could impact revenue that range from $8 million in our favor to $8 million in Sprint's favor. As of the end of the year, that range now stands at $13 million in our favor to $9 million in Sprint's favor. The asymmetric range is just a reflection of a number of moving billable variables and is not a change in our methodology or our view of any possible outcome. Absent a resolution of this dispute, we would expect the range would increase again during 2013. This dispute is separate from the $4.2 million in 2 asserted claims in the third quarter by Sprint related to historical billing issues, which remain also open. During 2012, and in connection with the open items under the Strategic Network Alliance, we established an accrual, which now stands at approximately $10 million. This is reflected on our balance sheet within other current liabilities. This accrual, which again is separate from the $9 million to $13 million range of reasonably possible outcomes mentioned earlier, will likely continue to grow in 2013 as we look to resolve the disputes within the context of our overall relationship with Sprint.

Slide 8. NTELOS ended the fourth quarter with approximately 439,600 total subscribers comprised of approximately 297,400 postpaid subscribers, which represents approximately 68% of our total subs and approximately 142,000 prepaid subs were the remaining 32% of our total subs.

Turning to Slide 9. Net subscriber additions during the quarter were 9,300 comprised of net adds of 9,200 postpaid subscribers and net adds of 100 prepaid subscribers. The 9,300 net adds is the highest quarterly net add since the first quarter of 2009. Jim will provide additional insight into the drivers behind these results.

Turning to Slide 10. Blended ARPU for the quarter was $52.78, up roughly $1.85 from the third quarter of 2012. This result primarily reflects a substantial increase in postpaid ARPU, which at $61.19, increased $2.22 from the third quarter of 2012. This is the third straight quarter of postpaid ARPU increases and is the continuing result of new subscribers being added at rate plans significantly higher than the rate plans of disconnecting subscribers, as well as existing customers being upgraded to higher rate plans.

Turning to Slide 11. Our operating expenses for the fourth quarter increased 12% year-over-year to $103.3 million. This increase was primarily the result of higher cost of sales and service related to higher equipment costs associated with the increased smartphone penetration, which Jim will touch upon in a few minutes. Our network cost, which includes cell site rental and access cost, also grew in the quarter. As our customer base grows along with the number of customers who use smartphones, we are making the necessary investments to meet the expected increase in capacity and data usage. These investments in network and smartphone subscriber growth weighed on our earnings for 2012 but are driving the return to EBITDA growth in 2013.

Turning to Slide 12. Adjusted EBITDA for the fourth quarter came in at $33 million or 28% of operating revenues, down from the prior year quarter of $34 million, which was 32% of revenues, but importantly, was up slightly from the third quarter of 2012.

Slide 13. Capital expenditures were approximately $71.8 million for the full year 2012. The bulk of the capital spending was tied to network coverage expansion, and additional network capacity to support our current and projected growth. We launched 76 new cell sites in 2012, that is up from 40 in 2011 and 66 in 2010, and we ended the year with 1,429 sites. This increased build activity helped improve the customer experience, control our in-market roaming expenses and expanded our wholesale coverage.

Slide 14. Our cash position at the end of the year was approximately $76.2 million. Our secured term loan balance at year end, including current maturities, was approximately $493.1 million. Our net debt leverage ratio at the end of the year was approximately 3.1x. Lastly, the company's Board of Directors declared a quarterly cash dividend on common stock in the amount of $0.42 per share to be paid on April 12, 2013, to shareholders of record on March 14, 2013. The total account amount -- excuse me, the total cash amount paid in April will be approximately $8.9 million. With that, let me turn the discussion back over to Jim.

James A. Hyde

Take thank you, Steb. Turning now to operations. We continue to see strong performance in all areas of our business. I'll start with Slide 15. Over the past several quarters, we've made the case that there's tremendous value in our retail business. We've articulated that the key to unlocking that value lies in providing our customers with a wireless offering that delivers savings, simplicity and superior customer service. We're pleased to say that we're executing on our strategy, building strong relationships with high-quality, value-conscious consumers. By focusing on these customers, we believe we can drive sustainable growth in our retail operations and create value for shareholders over the long term.

Turning now to Slide 16, you'll see that during the quarter we achieved net subscriber additions of 9,300, the fourth consecutive quarter in which total net adds were positive. These results were due in large part to a significant turnaround in our postpaid subscriber results. The 9,200 postpaid net adds delivered in Q4 represents an improvement of over 11,000 net subscribers from Q4 2011 and a 4,300 net subscriber increase sequentially. It also marks the highest quarterly postpaid net add results since fourth quarter of 2003. In addition, we delivered positive prepaid net adds in what proved to be a promotionally-driven fourth quarter, as our competitors slashed prices and offered specials to bring customers in the door. We chose a different route, staying disciplined and remaining focused on our prepaid distribution strategy. By not chasing the low-end promotional gross additions, we've been able to effectively manage churn, preserve ARPU and gain high-quality, more profitable customers. Still, our prepaid subscriber base has grown by over 16% year-over-year, with improving customer metrics across the board. For full year 2012, we added over 25,000 new customers to our subscriber base, which represents a turnaround of over 43,000 net subscriber additions from last year's negative growth results. This resulted in a net 6% increase of our total subscriber base from previous year.

Turning now to Slide 17. As we've mentioned in previous conference calls, the dominant driver of the wireless industry growth remains smartphone penetration and access to mobile broadband Internet services. In line with these trends, NTELOS continued to see significant smartphone adoption by our customers during the fourth quarter in both our postpaid and prepaid segments. Specifically, the addition of iPhone has had a tremendous impact. Since introducing iPhone on April 20, we have sold approximately 66,000 devices of which 67% were sold to new customers. During the fourth quarter, 71% of our iPhone sales were to new customers. As a result, approximately 22% of our postpaid customer base was using an iPhone by the end of Q4. Overall, at the end of the fourth quarter, 59% of our postpaid subscribers were using smartphones, up from only 36% a year ago; and 47% of our prepaid customers were using smartphones, up from just 23% last year at this time. Our overall smartphone penetration still lags the industry leaders, but we are quickly closing that gap. We expect to see continued strong smartphone take rates going forward, which, in turn, help to deliver positive results in our operating metrics as we look out over the future. Refreshing our smartphone lineup, along with the smartphone rate plan price increases we introduced earlier this year, has helped drive significant gains in average customer revenues. During the fourth quarter of 2012, we reported postpaid ARPU of $61.19, which is up $2.22 or nearly 4% from Q3. That Q4 number is up $6.25 or 11% when compared to Q4 last year. As we see more of our customers use smartphones, we expect these positive trends to continue, but more importantly, we're managing the smartphone migration of our existing base in a disciplined way to mitigate any short-term impacts to operating margins while maximizing long-term returns.

On Slide 18, you'll see that we're not only gaining new customers but we're keeping the ones we have. Much of the improvement in customer churn has been driven by the success of our customer satisfaction and loyalty programs. Over the last couple of years, we have been relentless in our goal to improve customer satisfaction across all touch points. During the quarter, postpaid churn came in at 1.8%, and our prepaid churn was 4.9%. Overall, our blended churn was 2.8%, and that compares to 3.4% during the same period in 2011. These results equaled our best ever Q4 blended churn results and represented our best postpaid fourth quarter churn in company history. So far, we're continuing on these positive trends in the first quarter of 2013. Our retail results are particularly impressive, if not counterintuitive, when you put them all together. During 2012, a period in which we raised our prices, we still achieved increased sales, significantly higher revenues on a per-customer basis, and some of the best customer satisfaction in churn results in company history. I believe these results reflect the strength of the NTELOS brand with our customers and the work of the NTELOS team and the way in which they delivered during such a pivotal year. To meet the increased data demand that comes as more of our customers use smartphones, we are continuing to make progress on our planed LTE rollout. We remain on track to launch our first markets in the western portion of our footprint during the second half of 2013, and expect to complete our initial rollout by the end of 2014. Our CapEx guidance, that we will discuss in a few minutes, includes between $20 million and $25 million in LTE expenditures this year of the total planned network upgrade costs of between $60 million to $65 million. In order to maximize our return on investment, we are maintaining a disciplined buildout strategy, upgrading our network technology where and when we need it. Our retail results certainly show that we have done an exceptional job of meeting the needs of our customers, and the investment in 4G LTE will help us to continue to do so.

As a we turn to Slide 19, I'd like to provide a few words on guidance. For the year ended December 31, 2013, we expect adjusted EBITDA to be between $135 million and $145 million. For the full year 2013, we expect capital expenditures of between $75 million and $85 million. And in 2013, we also expect net subscriber additions to exceed the strong net adds number we posted for 2012, driven primarily by year-over-year growth in sales, coupled with further churn improvements. And as we look into 2014, we expect adjusted EBITDA will increase again year-over-year. In addition, capital expenditures based on our current plans will increase by approximately $10 million in 2014 from 2013, before dropping significantly thereafter, consistent with technology upgrade cycles of the past.

In closing, we remain acutely focused on enhancing value for all of our stakeholders. Our business is performing extremely well on all fronts, and we expect those trends to continue with an acceleration of our retail business despite the challenging competitive environment, as well as continuing to monetize our network investments with strong wholesale relationships. We certainly realize the importance of Sprint to our business and continue to believe we are best positioned to provide network services to them going forward and for years to come.

With my prepared comments now complete, on behalf of NTELOS, thank you all for your time and consideration this morning. Mike, I think we can now open the call up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question we have comes from Ric Prentiss of Raymond James.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

A couple of questions. First, obviously, very nice improvement on postpaid adds, churn, ARPU. The iPhone seems to be a pretty large part of that. Can you talk a little bit, as we look into next year, we've heard the Canadian operators tell us that they think iPhone and other iconic devices have churned maybe even as low as, on postpaid side, 1% or lower. So do you think there's more room for improvement with the iPhone in '13? Will be the first question.

James A. Hyde

Rick, more room for the iPhone in terms of churn improvement?

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Yes.

James A. Hyde

Specifically, yes. I mean, the short answer is yes. It's early days for us and we just launched iPhone in April, as you know, and those customers are coming in and upgrading customers are signing 2-year agreements but clearly, the profile of those customers, as you track them against cohorts of other devices in the still similar customer cohorts, would indicate that the churn on the iPhone should be significantly less than non-iPhone customers. I would also say that other iconic devices is a good point. There are some good Android devices in our lineup now and some more on the horizon here that we're very excited about that we think will perform very similarly to the iPhone as it relates to customer satisfaction.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

I know you've given guidance that adds will be higher in '13 than they were in '12. Do you think postpaid churn in '13 could drop down to the 1.5 or below level? Just trying to gauge how much room there is there for improvement.

James A. Hyde

Look, we feel very confident that our net subscriber gains in 2013 will exceed those that we delivered in 2012. We're not giving specific guidance on churn, but we do expect churn to be improved, both in terms of prepaid and postpaid in '13 versus '12. And again, this churn improvement's going to drive part of that net gain as is an increase in sales. If for no other reason, we've got a full year of sales with the iPhone in our lineup, and clearly that's helped to drive some of the increases we saw in 2012.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Okay. And should we think of the mix in 2013 similar to the mix in '12 on the pre versus post net adds?

James A. Hyde

I don't think we'll see a -- we certainly won't see a drop in postpaid gross adds, and as I think about our prepaid distribution plans for 2013, we are -- we certainly believe there's some upside for us in terms of prepaid top line sales development in 2013. So by mix on the gross add side, that may change some, just depending on how well we execute on our distribution expansion plans on prepaid. On the net adds side, look, there's definitely room for us to improve our prepaid churn number. So the mix is going to fluctuate accordingly. I wish I could give you a little bit more towards specificity around direction, but I will tell you, as pleased as we are with our prepaid churn developments, we have planned in 2013 on reducing that number.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Sure. And then on the Sprint wholesale contract, the revenue in the fourth quarter seemed a little bit lighter than what we were looking for, particularly from the Sprint side. Was there any -- I know you said, Steb, that there was not a change to your methodology or outcome of the dispute, but was there anything noticeable on the demand side as we look into trying to think through what '13 wholesale revenue might be with Sprint?

Stebbins B. Chandor

Yes. As you said, Rick, the reported revenues under the Sprint agreement dropped slightly from the third quarter to the fourth quarter, about 2%. It appears that there was a slowdown in subscriber activity that more than offset the continued growth in voice and data usage on a per-subscriber basis. The reported revenues also take into account the amount of our accrual each quarter and lastly, there's a little seasonality at play here.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Okay. So as we think to '13, still expecting -- obviously, you have to go through the renegotiation possibly, but still thinking some growth in that as far as volumes making up for any kind of pricing changes?

James A. Hyde

Rick, look, I think we've been conservative in our 2013 outlook as it relates to Sprint. We certainly haven't -- we're not going to necessarily break that out between wholesale and retail because we haven't historically, but I will say that we've been conservative in our outlook on Sprint now. I would add to that, that January's coming in looking pretty good. January is up 4.8% year-over-year in terms of reported Sprint revenue, that's net of any incremental accruals on an adjusted basis. So we're ahead of our sort of early 2013 expectations and we're ahead of last year. So if there's some upside in there around Sprint, that would be a nice thing for us, but we think we've taken it at a very conservative view, both in terms of the way we've been accounting for this unresolved rate issue, as well as the way we're thinking about the business developing over the course of the year.

Operator

The next question we have comes from Phil Cusick of JPMorgan.

Philip Cusick - JP Morgan Chase & Co, Research Division

I guess, to start with, we've seen this ARPU tracking up a couple of bucks per quarter for a while. Where does this start to stabilize, given where people are coming in now?

James A. Hyde

We are really delighted in the development of our ARPU on the postpaid side. Clearly, the price increase, coupled with the continued strong take rate and penetration of our base with smartphones is driving that result. Having said that, to put it in perspective, and, Conrad, keep me honest on this number, I believe at the end of the year, only 30% of our postpaid base was on our, what I'd call, our new price plans.

Conrad J. Hunter

That's correct.

James A. Hyde

Right? I mean, while we're delighted with the rate in which we've been signing customers up on smartphones and, as we've said before, we've been very careful on the way we were managing early upgrades and so forth to mitigate the short-term impact of the margin hit we might take with early upgrades and so forth, that's actually slowed down the penetration of these new rate plans into our base if you think about it. So look, I don't know where this thing tops out. I will tell you that we have planned in 2013, based on sort of our assumed smartphones take rates and our sales numbers and our churn numbers for that postpaid ARPU number to continue to increase sequentially throughout the year.

Philip Cusick - JP Morgan Chase & Co, Research Division

Sequentially through '13, okay. And then on the Sprint dispute, I think last quarter, you said that there really wasn't a push to get this done. You didn't want to push to conclude this. Is that still the case or is there some sort of timeframe on this now?

James A. Hyde

Look, that's absolutely the case. We, all of our filings and so on and so forth, we use this legal term, dispute. It's not like our 2 companies are fighting with one another. These disputes kind of come and go and we're dealing with this dispute in a way in which we deal with any other dispute with Sprint particularly or other good partners of ours, which is to take a long-term view on the relationship. So while, clearly, time dictates that the size of the dispute grows, just based on that rate reset disagreement, but both of our companies seem to be taking a long-term, holistic approach to this, and we think that's what's best for all of our stakeholders as we think about value creation over the long term. So yes, while there's no ticking time clock on here, we'll resolve this thing in due course, and we'll do it with the best interest of all of our shareholders in mind.

Operator

The next question we have comes from Kevin Roe of Roe Equity Research.

Kevin M. Roe - Roe Equity Research, LLC

On the LTE spend for '13, what type of POP coverage do you expect that to achieve and what's the timing on a launch commercially?

James A. Hyde

So as we've been stating publicly, our first commercial launch will occur in the second half of 2013. If we can get it in sort of -- if we can get it in, in Q3, we will, that's a possibility, certainly won't be beyond very early in the fourth quarter, worst case. A big piece of the investment in 2013 ties to the upgrade of our core network, so that's a significant portion of the dollars that I described earlier in my comments. So to answer the rest of your question, we'll be sort of sub-0.5 million POPS with our first markets that we will light up in the western portion here in the second half of 2013. Having said that, it's an important part of our footprint because that's significantly high penetration for us in terms of customers. And then we'll complete the rest of the build, which will cover, call it, 4 million-ish POPS by the end of 2014. So you'll see a lot of acceleration in 2014 with the continuation of the LTE build.

Kevin M. Roe - Roe Equity Research, LLC

That's helpful. And on the -- your Sprint relationship, has the NTELOS engagement with Sprint changed at all since their Softbank announcement, and do you think, once that deal is behind them, your engagement with them may change?

James A. Hyde

Look, I'm comfortable with our level of engagement with Sprint. We've got a -- our relationship is on good footing, as it has been. Relative to the fact that they've certainly been busy and we've certainly been busy, I think that's just a statement of fact for sure. And how things sort of transpire as our 2 companies work through other strategic priorities that we're dealing with, I guess we'll see. But as I said a moment ago, we're relaxed on this end. Sprint certainly seems to be relaxed on their end. We'll continue to take a long-term view. We certainly believe we are the best alternative for Sprint over the long-term, and I mean out of any of them, right? Including whether or not they had a thought of a go alone. So I think we're in pretty good shape. The dialogue's healthy and good and positive and all those things and timing-wise, yes, there's been a lot going on over there, we've a lot going on over here and we'll just -- I think we'll deal with that appropriately.

Operator

And the next question we have comes from Barry Sine of Drexel Hamilton.

Barry M. Sine - Drexel Hamilton, LLC, Research Division

I want to delve in -- obviously, you're having very good success on postpaid subscriber additions. What is driving that? I know you're undercutting the national carriers on iPhone 5 pricing by about $50. I know you're doing the buyout the contract up to $125. Anything else going on, and then what is the impact? What are you paying in terms of a cost-per-gross add and how much has that gone up?

James A. Hyde

Barry, I'll take the first part of the question. It's Jim here. I think the best way to describe the success that we're having in our retail business is by saying we really are kind of firing on all cylinders. In addition to sort of continuing to enhance our device lineup, which certainly included the introduction of the iPhone in the line up, but closing the gap with other devices as well has helped but that -- I mentioned it earlier, sort of that relentless focus on the 3 strategic sort of differentiators that we want to deliver in the marketplace around savings to drive the consideration for NTELOS, simplicity, right? We're going to make it easy for you to switch. We understand who our targets are, it's the high-quality, value-conscious retail consumer switcher. That switcher word is important. So we've worked very hard to make it easy for customers to switch. And then this idea of improving the customer service experience across all touch points. Whether you come in, call in or click in, we're going to treat you better than the big guys do and you're going to remember that, and that's why we're getting customers to stick with us. So we think that strategy actually has long legs and we're going to continue to deliver on that. More specifically, clearly, we need to carve off that value proposition in the marketplace. We think we've done that. We've done it by raising prices relative to our historical pricing, but still being able to drive a price -- positive price differential to the premium priced national carrier brands. We've also worked very hard to expand and enhance our distribution. We relocated and remodeled the lion's share of our company-owned retail enterprise, but we've also aggressively pursued and grown a branded viewer program. We're now up to -- Conrad, is the number 63, 64?

Conrad J. Hunter

64.

James A. Hyde

64 branded deal locations that when you walk in there, it looks, feels, smells, tastes like NTELOS company-owned stores. That's had a significant impact on our success this year. So we're going to continue to focus on those things that we know work, right. Deliver a great network experience for our customers at a better value than what the other guys can provide without asking our customers to make sacrifices when it comes to decisions like device selection. So that's going a long way. The buyout, your contract promotion, has also been very successful for us, right? We could quickly found that even though we give people a reason to consider our brand around value, and make it easy for them to switch, to a certain extent, we can make it a heck of a lot easier for them to switch if we remove one of the biggest barriers to switching, which is the overhang of a contract from their existing carriers. So that promotion has been very, very successful for us over the course of the last several quarters.

Stebbins B. Chandor

As it relates to your question around CPJ, we have not discussed specifically our CPJ or disclosed the components of our acquisition costs. I would say however, though, that the nice thing about growing a subscriber base and growing gross adds is we're able to spread our fixed costs, of course, over a larger number of subscribers being added. That's all being weighed down, if you will, by the increased smartphone penetration that Jim walked through in some detail earlier. That subsidy cost, obviously, was removed from the feature phone to the smartphone is substantial. We're also doing a fair amount of iPhones, as Jim walked through earlier, and those obviously are fairly expensive. Having said all that, those type of numbers and those penetration has been -- were already loaded into our results for the third quarter and the fourth quarter. So you've already seen the impact of a very heavy load of subsidy costs.

Operator

The next question we have comes from Batya Levi of UBS.

John C. Hodulik - UBS Investment Bank, Research Division

This is John for Batya. Can you talk more about your plan to grow net adds versus what you did in 2012, and especially in light of the anticipated more robust LTE networks for Sprint and T-Mobile by the end of the year? And then I have a follow-up.

James A. Hyde

Sure, happy to. So look, we're going to continue to execute on the strategy that's been working, right? So for us, I think we're doing a very nice job to position our brand out there as a value, as a very high-quality, value alternative to the premium priced brands. You're right, I mean, LTE is an important part of that strategy over the longer term. But we spent a lot of time considering the timing, the pace around our planned LTE buildout. Clearly our current retail results indicate that we are doing a pretty nice job at targeting those customers that would consider a switch, and then winning them in the switchers game. Now our highest level of port-ins are coming from, not surprisingly, the highest priced competitive carriers: Verizon and AT&T. They also have a lot of share, so it kind of goes without saying. Having said that, those customers are coming over, they're making the switch to our network and our products and services. We are absolutely confident that we will have LTE where we need it and when we need it, so that we can remain competitively positioned in the marketplace to deliver the customer experience that our customers would expect from us. So how are we going to continue to grow it? We've got a full year of driving on the successes from 2012, many of which really kind of kicked in for us in the second half of last year. So in annualizing those results and continuing to drive customer satisfaction levels to new heights and, therefore, churn down, we think the net subscriber additions for '13 will be very handily higher than 2012.

John C. Hodulik - UBS Investment Bank, Research Division

Okay. And then on the S&A side, have you seen anything on the ground or, lack thereof, outside of your high-level discussions with Sprint that might give you any indication of what their intentions are regarding renewal?

James A. Hyde

Nothing's changed. I mean, we're not going to talk in detail about any discussions we're having with Sprint, and for all of the obvious reasons, it just wouldn't be appropriate. Having said that, from our perspective, at least, I mean, specific to your on-the-ground question, we haven't really seen anything from those guys here in the last quarter that's any different from the quarter before.

Operator

Next, we have Yehuda Miller of Cedarview Capital.

Yehuda Miller

With all M&A transactions we've been seeing in the space over the last 6 months and, I guess, momentum that you guys have been having in your retail market over the last year or so, have you ever thought about entertaining any strategic transactions or strategic alternatives, and what kind of the hurdle that you would think into any of those ideas.

James A. Hyde

Well, we certainly wouldn't speak about -- we wouldn't speculate about strategic transaction or anything like that on a call like this. You're right, there's been -- it's been an active space, one of the most recent deals announced is the proposed AT&T acquisition of the ATNI, Alltel wireless assets. We certainly are delighted with how that transaction certainly shapes up from a valuation perspective. We continue to believe that while we can continue to stand up on our own and compete and win in the retail space, and create value for our shareholders over the long term with our, what we feel is a fairly unique wholesale/retail strategy that works, we also recognize that we've got a strategic set of assets here. We've got a nice portfolio of PCS and AWS spectrum, we've got a robust retail business and we certainly fill a hole network-wise for some carriers that don't have networking over a portion of our footprint. So in terms of strategic alternatives, it's always nice to have them. Whether or not we need to pursue any of those, I guess, would really depend on the best way for us to create shareholder value for all of our stakeholders and so forth over the long term.

Yehuda Miller

I appreciate the comments, but is there a point where you guys feel where that might make sense due to the relative performance of your stock versus the equity markets over the last 6 to 9 months or so?

James A. Hyde

No.

Operator

And our final question today comes from Ric Prentiss of Raymond James.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Some follow-up, if I could. Building out of the LTE network kind of tees up the question of other wholesale partners besides Sprint. As you look at building out a network, particularly in the West Virginia and the western side of your properties, where are you at as far as talking with other operators saying, isn't it cheaper possibly for you to build it and let other people come?

James A. Hyde

Clearly, we've said before and we'll continue to say it, we understand the wholesale business. We're good at it, and we absolutely think that, that is a cornerstone of our strategy over the long term. In terms of where we may or may not be with other carriers in other discussions, certainly we wouldn't talk about that in any level of detail other than to say that, that is a strategy that we are and will continue to aggressively pursue. I guess, one that we can talk about that's a little smaller, we've talked about it before, wholesale is a couple of things. Some of that is network sharing/buildout a network for other carriers and with data being a real deal now for actual users, expanding data roaming agreements is something that we've also been aggressively pursuing. We have recently expanded our roaming agreement with Leap to include data roaming. They've actually begun to convert those customers over onto our network. So we do think that, that's an incremental revenue stream and we're already beginning to see that will grow as they continue to convert their base over, over the course of the coming years. So in addition to some of the things you alluded to, we're also working hard to secure data roaming agreements with carriers to drive incremental wholesale revenue streams as well.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Okay. We appreciate you putting the guidance into the press release also. Sometimes companies don't get credit but it helps us on these busy days, make sure we get the important stuff. The final question I've got for you is, T-Mobile has been making a lot of discussion about handset prices, the financing or installment payment thought process. As you look at the U.S. industry, and your markets in particular, is that something that's interesting to you. Have you studied it, would you follow? Just trying to gauge is the U.S. poised for kind of a shift this way?

James A. Hyde

Time will tell. The answer your -- well, first of all, I love the guys at T-Mobile. A lot of my good friends are still there. And they're doing some things out there that could turn out to be transformational in the space for sure. I think time will tell. Consumer behavior is a very difficult thing to change, but it's not unchangeable. As it relates to handset financing particularly, that's an interesting concept, certainly one that we're taking a good hard look at right now, because there might be an opportunity there. Where in my mind it gets a little bit risky for a business like ours anyway, and T-Mobile's a much larger business than we are, is I want to make sure that we continue to focus on being a wireless service provider and not a finance company. So to the extent that we pursue or trial handset financing for a portion of our customers, we'll be very, very risk-averse as it relates to really changing the makeup of our company. And then the biggest cost of this business is not handsets, right? At the end of the day, the biggest cost to the wireless -- all wireless carriers when you get to 100%, 100-plus percent penetration is customer churn. So anything that you do with programs like that could potentially open you up for a spike in customer churn. We will tread very, very lightly on those.

Jeffrey Goldberger

Well, this is the conclusion of our call today. We'd like to thank everybody for their participation and just to let you know, at about 1 p.m., there will be a replay of the conference call on the company's website and we thank you for your time and have a great day.

Operator

And we thank you, sir, and to the rest of the management for your time also. The conference has now concluded. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you, and take care, everyone.

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