NTELOS Holdings (NTLS) Q1 2014 Results - Earnings Call Transcript

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NTELOS Holdings (NASDAQ:NTLS)

Q1 2014 Earnings Call

May 07, 2014 10:00 am ET

Executives

Jeffrey Goldberger - Managing Partner

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

Stebbins B. Chandor - Chief Financial Officer, Executive Vice President, Treasurer and Assistant Secretary

Analysts

Batya Levi - UBS Investment Bank, Research Division

Eric Pan - JP Morgan Chase & Co, Research Division

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

Operator

Good day, and welcome to the NTELOS Holdings First Quarter 2014 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I will now like to turn the conference over to Mr. Jeffrey Goldberger, Investor Relations. Mr. Goldberger, the floor is yours, sir.

Jeffrey Goldberger

Thank you, Mike [ph]. Good morning, and welcome to the NTELOS First Quarter 2014 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've downloaded the accompanying earnings 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 sections of our Annual Report on Form 10-K and quarterly report on Form 10-Q and other SEC filings.

During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for 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.

Turning to Slide 3. Representing NTELOS today are Jim Hyde, Chief Executive Officer; and Steb Chandor, Chief Financial Officer.

Let me quickly outline today's agenda. 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-month ended March 31, 2014. He will also provide updated guidance for fiscal year 2014. Jim will conclude management's prepared remarks by offering an operational overview for the remainder of the year. Management will then take your questions.

With those comments complete, allow me to turn the call over to Mr. Jim Hyde. Jim, the floor is yours.

James A. Hyde

All right. Thanks, Jeffrey, and thanks to everyone who has joined us on today's call. Before I begin my prepared remarks, I'd like to take a moment just to thank our customers, our employees and our shareholders for your continued support.

During Q1, we continue to build on the momentum of our retail business, while delivering wholesale results that were in line with expectations. The competitive atmosphere in retail certainly shows no signs of tempering, while the national carriers continue to aggressively introduce new pricing plans and other financial incentives to drive subscriber growth.

Currently, there are plenty of deals to be had. This year, number of promotions, programs and new acronyms flooding the marketplace has made it difficult for consumers to navigate. Consistent with our strategy to deliver savings, simplicity and service to our customers, we've cut through the clutter, and adapted our offerings, successfully positioning our nControl program as a compelling alternative to the national carrier restrictive rate plans and programs.

Our early success with nControl drove record retail revenues during the quarter of $81.4 million, and helped us generate 1,700 net ports, which marks our 11th consecutive quarter of positive net ports. These results don't just validate our retail strategy, they underscore its potential. I'll talk more about nControl and the overall retail environment later in the call.

Turning now to wholesale. We performed, as expected, during the first quarter of 2014, delivering revenue of $40.7 million. After Steb provides a review of our financial results and comments on our 2014 full year guidance, I'll come back and provide additional color on our operations and strategy.

Steb, I'll turn it over to you.

Stebbins B. Chandor

Thank you, Jim, and good morning, everyone. During this call, I will reference the financial results as reported in our earnings release filed earlier this morning and in our Form 10-Q, which we expect to file shortly, and please refer to those filings for additional information.

On Slide 4, for the first quarter, operating revenues were $122.1 million, a 2% increase compared to the prior year period.

A little more detail on Slide 5, retail revenue for the quarter, which again includes both subscriber and equipment revenues, increased 5% year-over-year to $81.4 million, as Jim mentioned, the highest level in the company history.

First quarter subscriber revenue increased 4% or approximately $3 million as compared to the prior year quarter, primarily reflecting an increased number of subscribers. Sequentially, from the fourth quarter of '13 to the first quarter of '14, subscriber revenue was essentially flat, as competitive pressures slowed the growth of postpaid ARPA, and kept prepaid subscriber growth below our expectations, and Jim will touch on the competitive dynamics in a few minutes.

On Slide 6, for the first quarter, wholesale and other revenue, as Jim mentioned, was $40.7 million, primarily reflecting revenue from our Strategic Network Alliance agreement with Sprint. SNA revenue for the quarter was $39.3 million, similar to last quarter.

Slide 7. With respect to subscriber activity, NTELOS ended the first quarter with approximately 468,000 total subscribers, approximately 2/3 of which were postpaid subscribers. This translates to roughly a 4% year-over-year growth in total subscribers.

Net subscriber additions shown on Slide 8, during the quarter were 3,400, comprised of net adds of 300 postpaid and 3,100 prepaid subscribers. This marks the ninth consecutive quarter of positive net additions, and reflects in the face of the increasingly competitive environment, offerings which continue to meet the needs of our current and prospective customers.

Slide 9. As stated on the previous earnings call, we switched from reporting ARPU to ARPA, which we believe is a more effective way to measure our progress in capturing a larger share of the household wireless wallet. As we increasingly target families with shared data plans and other features they demand and the average number of devices tied to each account grows, we believe this new metric more accurately reflects our efforts to grow our postpaid subscriber revenue.

For Q1, ARPA was $137.47, up roughly $6.78 from the first quarter of '13. Postpaid subscribers per account were 2.2, up from 2.1 in the first quarter of '13. ARPA also increased modestly, as compared to the fourth quarter of '13, primarily reflecting an increase in the average lines per account, as our focus on this multiline accounts continues to provide positive results.

Operating expenses, on Slide 10. For the first quarter, increased 8% year-over-year to $110.2 million. The primary drivers of the year-over-year increase were higher retention costs associated with device upgrades, higher bad debt expense and increased depreciation tied to the replacement of legacy network equipment. Retention cost, however, were down significantly from the fourth quarter, but are expected to be higher during the rest of 2014, as we capture a larger percentage of customers, likely, to churn.

Lastly, our network costs, which includes cell site rental and access cost, also grew in the quarter as we made the necessary investments to meet increased data usage and the continued deployment of 4G LTE. However, we continue to take proactive steps to reduce the impact of the substantial data growth on our network costs, some costs of which will lighten as we turn up more 4G sites later this year. At the same time, we continue to focus on all of our expenses, including customer acquisition, retention, bad debt and roaming, with an eyes toward driving better adjusted EBITDA performance. In the quarters to come, we will provide additional color on our progress in these areas.

Slide 11. As a result of the previously discussed items, adjusted EBITDA for the first quarter came in at $33.9 million or 28% of operating revenues, compared to $37.4 million or 31% of operating revenues for the same period last year.

Slide 12 shows the capital expenditures were approximately $14 million for the first quarter and the bulk of the capital spend was again tied to our LTE network upgrade and the addition of network capacity.

On Slide 13, our cash position at March 31 was approximately $121 million, and as a reminder in late July, we refinanced our Term A loans, with proceeds from new Term B loans and rate an additional $40 million in Term B loans. Accordingly, our secured term loan balance at quarter end, including current maturities, was approximately $528 million and consisted entirely of Term B loans. The Term B loans were covenant light and mature in November of 2019. I'm sorry, I think, I mentioned that we refinanced our Term Loan As in July, it was January.

The Term B loans are covenant light, as I mentioned, will mature in November of '19. Our gross to net debt leverage ratios at the end of the first quarter were approximately 3.6x and 2.8x, respectively.

Slide 14, as it relates to our 2014 guidance, we reiterate our expectation for full year adjusted EBITDA between $140 million and $150 million. And for the full year '14, we expect capital expenditures of between $85 million and $95 million, of which approximately $45 million in total will be related to the completing of our initial 4G network upgrade.

Finally, the company's Board of Directors declared a quarterly cash dividend on the common stock in the amount of $0.42 per share to be paid on July 11, 2014 to shareholders of record on June 13. The total cash amount to be paid in July will be approximately $9.1 million.

And with that, let me turn the discussion back over to Jim

James A. Hyde

Okay. Great. Thanks, Steb. In both the prepaid and postpaid subscriber sectors, the wireless market remained hypercompetitive, with the national carriers lowering prices, bundling service offerings and offering switcher incentives, such as paying early termination fees for consumers.

While it's clear the national players are boosting at all fronts, we remained disciplined. Despite an increasingly challenging environment, we continue to target high-quality customers, with high-quality profitable product and service offerings. The investments we've made in our retail business continue to pay dividends, albeit somewhat muted during the first quarter, given the competitiveness of the market.

Our new nControl plan has been successful thus far, because they are specifically designed to respond of the need of wireless consumers everywhere, providing them more flexibility, more value and, ultimately, more control. We soft launched nControl during the fourth quarter of last year, and we followed up with a full advertising campaign beginning in late February of this year. While still early, the results are encouraging. We had one of our best March postpaid sales months in company history this year, which I believe says quite a lot given the aggressive promotions currently available in the market. We believe the benefits of nControl are beginning to resonate with customers and should drive more growth, less churn and improve customer satisfaction over time.

The demand from our customers for the latest technology has increased dramatically, particularly as we've seen an increase in LTE coverage and devices being offered in our markets by our competitors. As you know, we launched 4G LTE in our first 4 markets during the fourth quarter of 2013, and our LTE upgrade plans remain on track. Ethernet has been ordered, with firm due dates or is already in place for 75% of our LTE sites. Therefore, we plan to launch LTE services in more markets during May and June, and by the end of June, we expect to cover approximately 2.5 million POPs with LTE, which is nearly 60% to our year-end goal of 4.2 million POPs and we are on track to achieve that objective by the end of 2014.

After the H Block auction concluded, we reengaged with our DISH counterparts to complete preparations for our Phase II fixed mobile broadband market trials. Our core network elements are substantially complete, and we're pushing the back-office setup work. Based on refined network design models, we expect that the trial network will cover nearly 500,000 POPs, and we should begin adding friendly users next month and customers to the network in earnest starting in July. We look forward to giving you further updates on that trial in the coming quarters.

If you turn now to Slide 15. Looking closer at our operating results during the quarter, we achieved net postpaid subscriber additions of 300, the ninth consecutive quarter in which postpaid net adds were positive. As I indicated earlier, the competition in the marketplace has been fierce, contract buyouts, handset-financed programs, early upgrade offers and good old-fashioned price slashing have been ruling the day. For us, it's been important to stay focused on our strategy, maintain our discipline and execute with excellence.

We've also been true to our philosophy of watching carefully what the big guys are doing to innovate, learn from what we see, and then when it make sense, be fast followers on products and services that we feel we can and should deliver. In some cases, that translates into us incorporating great ideas, perfecting them to fit our strategy and delivering innovation of our own, like in the case of our new nControl plans. nControl, we feel combined with the best of Un-Carrier, but with the family focus and more control and flexibility for customers.

In other cases, our fast follower philosophy translates into leveraging the economies of scale that are created by the national carriers, so that we can deliver products and services at a reduced cost, like in the case of our LTE network upgrade that's currently under way.

Having said all of that and staying true to our philosophy, this month, we'll be launching the next phase of our nControl program, nControl 2.0, if you please. With the introduction of the NTELOS early upgrade option we call, nPower. What makes nPower different from similar programs that we've seen offered historically by our competitors is its simplicity and flexibility. With nPower, customers have a choice. They can purchase the bundled option and includes early upgrade capabilities and premium handset insurance, or they can choose to unbundle and purchase those things separately, depending on need. We believe by offering a simple program and the choice, customers will appreciate not being forced to buy what they don't want or need and will benefit from a better overall value proposition.

And we're not stopping there. Over the next few months, we will begin to offer additional choices to our customers. For example, we are finalizing our device installment plan options, and are excited about offering what we feel will be a differentiated program customers will want to take advantage of. In conjunction with expanded LTE coverage, we intend to launch an enhanced and improved device lineup, including the latest devices from Apple, Motorola, and Samsung, with the Galaxy 5 hitting our shelves over the next couple of weeks.

Sometimes late -- some time in late Q3 or early Q4, we plan to introduce tablets into our lineup as we feel the network experience will be up to our customer's expectations relative to those devices.

Moving now on to prepaid. During Q1, we generated net adds of 3,100. The prepaid sector was also very competitive during the quarter, and consistent with previous quarters, we've maintained our pricing discipline, focusing on higher quality prepaid customers with our offerings.

Please turn now to Slide 16. While the competitive landscape has heated up, the dominant driver of wireless industry growth remains the same, and that's smartphone and data device penetration, along with the access to high-speed mobile broadband Internet services. Overall, at the end of the first quarter, 74% of our postpaid subscribers were using smartphones, up from just 63% a year ago, and 62% of our prepaid customers are now using smartphones, up from 53% this time last year.

Data remains the growth engine, and we continue to look for ways to deliver great customer experience in a differentiated value proposition.

Turning now to Slide 17. During the quarter, churn was stable, with postpaid coming in at 2.2% and prepaid at 4.6%. Overall, our blended churn was 3.0%, down slightly from the fourth quarter of 2013. Having said that, we believe Q1 was our high watermark for churn this year. We expect churn to improve throughout the remainder of 2014 as we begin to see the benefits from our LTE network upgrade and other planned initiatives in our retail business that I mentioned a little earlier.

With respect to our largest wholesale customer, Sprint, as I've noted on the past few calls and conferences, given the nature of our relationship with Sprint, it would not be appropriate to provide any color or information on that front at this time, as I'm sure you can all understand. When we have more to talk about as it relates to Sprint, we will certainly do so.

Slide 18. We are happy with the progress we've made over the last 6 months as we've launched LTE and introduce new service plans. However, we have many challenges ahead of us this year as we work to complete our LTE build, launch an EIP program and support new devices on our network. All the while, we'll stay focused on delivering savings, simplicity and service.

To wrap up, our commitment to enhancing value for all key stakeholders remain steadfast. There's no doubt that the dynamics in our industry are changing at a pace we haven't seen in years. Industry consolidation and aggressive pricing continue to dominate the conversation. No matter how these trends play out, we're confident that NTELOS, with our unique retail, wholesale business model, is well-positioned to succeed and serve our customers, partners and shareholders for the foreseeable future.

That concludes my prepared comments. So on behalf of NTELOS, I would like to thank you all for your time and consideration this morning. I think we're ready to go ahead and open the call up for questions. Operator, if you could help us out, please.

Question-and-Answer Session

Operator

[Operator Instructions] The first question we have comes from Batya Levi of UBS.

Batya Levi - UBS Investment Bank, Research Division

A couple of questions. First on the wholesale side. Can you just remind us what you're assuming for wholesale revenues, especially the SNA for the remainder of the year that's included in your EBITDA guidance? And I know it's a sensitive topic, but can you maybe talk about if you are in active negotiations with Sprint right now, or is that something to look for out later in the year? And then on the retail business, the -- monthly EBITDA started off a bit slower, but you maintained your outlook and you are talking about serious competition, and we feel that it's only getting harder. So can you talk a little bit about what gives you confidence that trends will improve from here and what is kind of included in your overall EBITDA outlook?

James A. Hyde

Sure, Batya. I'm going to ask Steb to answer the first question around the wholesale revenue, and then I'll take the other 2 after that.

Stebbins B. Chandor

Yes, Batya. When we settled our disputes with Sprint and amended our agreement in September of last year, we said that our SNA revenue should be flat, plus or minus to the levels that we've been running around $39 million to $40 million, and that's what we have seen over the last 3 or 4 quarters. The contract itself doesn't include any material price adjustments in the near term, and I think that's probably the best way to answer that question.

James A. Hyde

You asked specifically about whether or not we're in active negotiations with Sprint, I believe there's been some pre-market comments that circulated -- I think, based on Sprint's earnings call or Analyst Day, I think heard something they were asked that direct question as well at the Analyst Day and said that they were in active negotiations with us. So I'm going to stick to what I said earlier, which is based on where we are with Sprint is right now, wouldn't be appropriate for us to provide any additional color. Sprint seemed to be willing to answer that question, and that's great. We're going to talk about Sprint when we get something more substantive to say about Sprint here in the future, okay?

Batya Levi - UBS Investment Bank, Research Division

Okay. That's fair.

James A. Hyde

And then on retail, particularly with the competitive dynamic that's going on in the marketplace now, why are we confident? First of all, let me say, it's not getting any easier. I think, we can all recognize that. What I feel very good about is that we got a well-defined strategy and a plan, and there's a number of things that have me encouraged that we'll continue to be able to hold our own, as long as we stay focused and disciplined and execute on our strategy. The things that I'm most excited about are the launch of additional markets with LTE coverage. I mean, that's big. We've got some statistics with where we've launched LTE within our footprint currently that are very, very encouraging. The churn in those markets is lower than non-LTE markets. Sales in the first quarter in our LTE markets were up 40% on a year-over-year basis compared to a 16% increase in non-LTE markets with -- on the postpaid side. I think that's pretty encouraging stuff. With expansion of our LTE coverage, we'll come and enhance device lineup, which we think is also pretty important for our future success. And then we've been very deliberate in our approach around early upgrade programs and equipment installment plans. Not having those during the fourth quarter and the first quarter has hurt us. So while introducing those programs beginning now and then following the equipment installment a little bit later in the summer, I think will only help us. And then will fold tablets in when we think the network is ready and the customer experience will be relevant, and I think as everybody knows, tablets have been a very positive driver in the wireless retail space here over the course of the last year or so. So again, we think we'll get -- we should get some help from having tablets in the lineup, in conjunction will all the other things I just mentioned.

Batya Levi - UBS Investment Bank, Research Division

I want to follow-up on the ARPA side. I know that you're focusing on that metric now, grew about 5%. Can you give us a sense of how that growth compared to 4Q or maybe the trends in '13 if you had looked at that metric? And so a few adjustments and inclusion of tablets could potentially hurt that going forward. What are your expectations for ARPA growth for the remainder of the year?

James A. Hyde

Steb is going to give you some trend numbers here real quick. He's just flipping on that page. But let me take the second part of that question first. We do expect that ARPA will improve over the remainder of the year. We're seeing, for instance, in the -- we're seeing a fairly significant shift in our nControl plans. And while, certainly, our nControl plans provide a great opportunity for single-line customers, the real benefit is when people begin to take advantage of the shared component of those plans. And so we're seeing a significant number, for instance, of our customers that are -- our existing customers that are migrating to those plans, adding a line of service, for example. We're seeing a higher percentage of our gross adds now coming in as multi-line accounts than what we've seen historically. Those things all would certainly support our forecast of improving ARPA over the remainder of the year. But Steb, you have some trending?

Stebbins B. Chandor

Yes, and I won't read all the numbers. But included in our press release under key metrics, we did layout the last 5 quarters of ARPU [sic] [ARPA], both with the revenue numbers, and the postpaid accounts and the subscribers per account. So hopefully, those numbers are available to you, but it's grown each of the last couple of quarters. And as I mentioned in the prepared comments in the fourth -- first quarter, the growth slowed, if you will, primarily because of the competitive environment that Jim has already referenced.

Operator

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

Eric Pan - JP Morgan Chase & Co, Research Division

This is Eric Pan, standing in for Phil. A couple of questions, if I can. I know you can't talk too much about Sprint, but we have heard that they have been in the marking, looking for cell sites. Can you tell us if that's what you're seeing as well? And second, can you talk a little more about the increase in expenses this quarter, particularly bad debt and roaming?

James A. Hyde

Sure, Eric. Thanks for joining the call. I'm going to have Steb answer the second question. I will take the Sprint question. Certainly, we're not going to talk anything specifically here about our discussions with Sprint. As it relates to network activity in the marketplace, my short answer is no, we haven't seen any network activity in the marketplace for Sprint. Steb?

Stebbins B. Chandor

As it relates to expenses, there are several line items to focus on, our cost of sales and service includes those roaming expenses, and they did continue to increase on a year-over-year basis. And that roaming was one of those in net ops we referenced also. As it relates to some of our bad debt expense that's sitting in our customer operations line, that number is up year-over-year, but it actually continued up during 2013, hitting a high watermark, I believe, in the fourth quarter of 2013. And we do expect 2014 bad debt could be -- not substantially, but below our 2013 numbers. We've done a number of things, both with predictive analytics. We have increased and improved the collection procedures, as well as looking at the credit quality of our customers and making sure that we are doing the right thing from a customer service perspective. So all those put together, including tightening some of our credit policies, should lead to improved expenses on the bad debt side for '14.

Eric Pan - JP Morgan Chase & Co, Research Division

So is it reasonable to expect those expenses to remain elevated for the rest of the year?

Stebbins B. Chandor

If that -- the question is relative to 2013, I believe that our bad debt should be down in 2013 from 2014. Roaming expenses always a little bit more difficult to deal with because we do have a number of roaming partners, and with the increased data usage in the marketplace with the adds [ph] and more subscribers traveling out of market, our roaming expenses are continuing to go up into the right. We are managing that in a number of ways. One is we are looking at rate plans that can be dealt with just that. We're looking to renegotiate to where we can, our roaming arrangements. And then looking and really in-depth that all our high roaming areas to make sure that we're doing the right thing from a customer's perspective, as well as from a network perspective to minimize those off our network costs.

Operator

[Operator Instructions] At this time, we will take Ric Prentiss of Raymond James.

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

I thought I hit start with about a dozen times there. A couple of questions for you guys. First, you called out where upgrades were a little light in the quarter. Can you tell us what that upgrade percent was and where you think you will head the rest of the year?

James A. Hyde

I think, we are -- Q1 we're at like 5.3%, that was our total upgrade number for Q1. Actually, it's just closer to 6% and that included just the postpaid what you're referring to. So we're close to 6%, and we do think the upgrade percentage will grow during the year, we still believe that we'll not be over 8% and probably not materially over 7%.

James A. Hyde

So Ric, interestingly enough, in the -- we have -- in the second half of the year, we have fewer customers coming off of contract than we had last year in the second half of the year and just in sheer numbers. We also have some interesting data points though that have us thinking about the way in which we proactively retain customers, our churn propensity modeling is changing almost on a daily basis. With these with competitive buyers, they're contract offers all over the place. We've seen a higher percentage of customers who are churning, our customers that are in contract rather than customers that are in month 23 or 24, up of their life with us. So that model continues to change. That may drive some proactive retention efforts and we'll look a little different than what we've done before, but the net impact of that is, A, an improved churn result, and B, if we do that in conjunction with the introduction of some these new services and we talked about, like yearly upgrade option and/or an equipment installment plan that will -- some of that will help offset increase in retention expense. Does that make sense?

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

Yes, it does. And just to clarify, so the 6% was blended postpaid and prepaid, and postpaid was lower than the total? I missed what you said, Steb.

Stebbins B. Chandor

Yes, our total blended upgrade for the quarter was about just under 6%. And we've been relatively consistent between 5% and 7% over the last couple of years. We do think it will pick up, as Jim mentioned towards the end of this year, with all the offers and activity that we're using -- that we're up and we're seeing in the marketplace.

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

Okay. And then on the roaming cost, it sounds like you're getting some in-footprint roaming, is that what you're alluding to as far as saying look at high roaming areas?

Stebbins B. Chandor

Absolutely.

James A. Hyde

Yes, it's some in-footprint and then on the fringe, particularly in the West where we've got -- we're the network provider for Sprint, and unless [ph] you have preferred and best rate roaming partner of Sprint. Well, we don't have coverage on the Sprint in the fringe, I'm sorry, in the West on the fringe, neither does Sprint. So if our customers are roaming on the fringe in the west for us, they'll drop onto a more expensive network roaming partner's network. So we're looking at some things that can do on customer behavior perspective, as well as the network perspective in some of those fringe areas as well. That activity that we've been engaged with -- on for years, but as you can imagine with increased usage across the board, it becomes more acute that we pay very close attention to that and take the appropriate action.

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

That leads naturally to the auction question. You guys have mostly mid- or high-band frequency with the DISH trial, what are your thoughts as far as AWS-3, and then more importantly, the broadcast low-band auctions?

James A. Hyde

So we're continuing to evaluate the upcoming auctions. I'm going to reiterate sort of our strategy around spectrum. Spectrum continues to be a major focus for us, along with all the rest of our peers in the wireless industry. From my perspective, there's 3 ways that we can get access to usable spectrum. One is partnering, one is purchasing in the private party-type transactions and the third is participating. We call the 3Ps are up here and participating by that, I mean, in the auction process. And we're regularly evaluating each of those 3Ps, as it relates to spectrum. And AWS-3 is interesting. Obviously, we've got some clarity around the rules there. That Spectrum fits in kind of nicely with some spectrum that we currently own, as well as with some -- as we think about sort of wholesale expansion opportunities within our footprint. And then the incentive stuff, the jury is still out. I mean, we still need some more clarity around the rules there, there are some other things sort of circulating. While certainly that is beachfront property that looks pretty interesting to us, as it relates to the quality of the spectrum, there's too many open questions for us to get -- have some real clarity around that yet, but we'll keep you posted.

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

Okay. And then final question with the launching of the early upgrade in May, and then sounded like the installment plan might be a little later. Was I so -- wait, May got the early upgrade, and then when was the installment plans?

James A. Hyde

Installment plan's going to come a little bit later in the summer.

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

Okay. When you think about the installment plans, I guess, say, it's probably more confusing accounting items, we, in the sell-side face, how are you guys thinking about how that will affect your their numbers on a revenue and EBITDA basis? Just macro, not asking for absolute. Just kind of how -- what are the positive move in numbers?

James A. Hyde

So macro level, Ric, as I'm sure you see with at least some of our competitors, there's an offset in there, right? There's a little bit of moving money around. I mean you've got -- if you're going to come off of your monthly recurring fees, rate plan charges that you're charging your customers and replace that with equipment revenue, right, I mean, there's some accounting there but there are some offsets. So there's an offset from service revenues that's replaced by some level of equipment revenue. So at macro level, I think that's the way that we're thinking about that as well.

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

And on the EBITDA line, typically, it allows EBITDA to move higher, even though the working capital takes a hit. Is that kind of your thoughts, too?

Stebbins B. Chandor

That's correct. We'll be accounting for at same way the majority of the larger carriers are accounting for it.

James A. Hyde

That's right. And I guess, we're sort of -- we got -- what we've got, what we've got coming sort of later than the other folks. Most of our competitors will have a full year of the EIP sort of impact on their results. We certainly won't have that for this year. But where we are, we certainly are -- I've talked about EIP since the first time in T-Mobile, I think, kicked it off, which is, I think, you need to be very careful in your approach around EIP. We continue to believe that. So we're going to -- we've been deliberately very methodical in our approach around EIP. Having said that, look, it's a, the adoption rate, I mean the EIP programs with the national carriers are certainly very telling, indicating that these types of programs are very appealing to consumers. And when you're NTELOS competing against very aggressive buyer, your contract offers in the marketplace where a customer can break their contract at this point, at any given point, and then move to a no-money down upgraded device across the street, you got to pay attention to that stuff. And we certainly have and so we're optimistic that we've got the right response to that, from a competitive perspective that will continue to help us drive growth and also drive EBITDA expansion over time.

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

And like you said, it's not going to be much effect within calendar '14, but did your EBITDA guidance assume you were going to have launched that within the year?

James A. Hyde

Yes, our guidance does include that some time towards the back half of the year, we would be launching equipment installment plan.

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

And it does look like the national carriers are seeing, maybe about 1/3 of the adds, come in on that plan. Is that something that sounds reasonable over time?

James A. Hyde

Time will tell. You're right. I mean, I think at the high-end, we've seen 30% with the national guys take rates on those plans. I guess, we'll see if we see those kind of take rates not once we get it out there. But we'll definitely keep you posted.

Operator

At this time, we will conclude today's conference call. We thank you for attending today's presentation. I would now like to turn the conference call back over to Mr. Jeffrey Goldberger for any closing remarks. Sir?

Jeffrey Goldberger

Thank you, Mike [ph]. As a reminder, a replay of this call and an archive of the audio webcast will be available later today. Please refer to the company's Investor Relations section for details. Also feel free to contact management with questions. And again, we appreciate everybody's participation today. And look forward to catching up with you next quarter. Thank you.

Operator

And we thank you, sir, and to the rest of the management team for your time also. The conference call is now concluded. At this time, you may disconnect your lines. Thank you, and have a great day, everyone.

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