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Sprint Nextel Corp (NYSE:S)

Q4 2006 Earnings Call

February 28, 2007 8:00 am ET

Executives

Gary Forsee - CEO, President

Paul Seleh - CFO

Kurt Fawkes – IR

Mark Angelino - President, Business Solutions

Analysts

Thomas Lee – JP Morgan

Jason Armstrong - Goldman Sachs

Chris Larsen - Credit Suisse Securities

Simon Flannery - Morgan Stanley

Ric Prentiss - Raymond James & Associates

Tom Sykes - Lehman Brothers

Michael Rollins - Citigroup

Presentation

Operator

At this time I would like to welcome everyone to the Sprint Nextel fourth quarter 2006 earnings conference call. (Operator Instructions) I will now turn the call over to Mr. Kurt Fawkes, Vice President of Investor Relations. Sir, you may begin your conference.

Kurt Fawkes

Thank you. Good morning, everyone and thanks for joining us today. For the format of the call Gary Forsee, our CEO, is going to kick off the discussion and then Paul Seleh is going to provide a financial perspective. We'll finish the call with a Q&A session.

Turning to Slide 1, I want to point out that in our remarks this morning we will be discussing forward-looking information which involves a number of risk and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a detailed discussion of various risk factors in our SEC filings and I strongly encourage you to thoroughly review our filings. Today's presentation can be found at www.Sprint.com.

Throughout our call this morning, we will be referring to several non-GAAP metrics. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures for the fourth quarter and the year can be found on the attachments to our earnings release and also at the end of today's presentation which is stored on our website. Also I would like to point out the consolidated wireless results will be discussed on a continuing operations basis, pro forma when we're talking about full year 2005.

On Slide 3, we provide the normalizing items for net income and EPS for the fourth quarter. We reported net income from continuing operations of $261 million, that's $0.09 per share, and that compares with breakeven earnings in the year-ago period. Special items in the quarter netted to $15 million and that's less than a penny a share. After-tax amortization expense was $560 million, or $0.20 per share and then you can see the adjustments that we make on the slide that gets us to 29 versus the 23 a year ago.

With that, I'm going to hand it over to Gary Forsee.

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Gary Forsee

Thank you, Kurt and good morning, everyone. Before I get into the core presentation, I'd like to provide an overall perspective as to where we are tracking relative to the plans that we announced on our January 8th conference call. The foundation of the merger has been to create a unique wireless centric company with a differentiated asset base and we have been executing against that plan and strategy. In 2006 we made considerable progress, including addressing affiliate and partner situations, spinning off the local business -- now Embarq -- and we're on track with the steps to transition iDEN customers over time to the CDMA platform.

Additionally, we are rapidly deploying the fastest and largest broadband wireless network. We're making considerable progress on our WiMAX plan and we continue to realize significant merger synergies.

In a nutshell, we remain on track to offer the best products and services on the most powerful network. At the same time we acknowledge that we have much work to do. I believe the right plans are in place, the management team is focused on the right things and there is an intense accountability across the organization to deliver performance and ensure progress is being made on those plans.

I'd like to start my remarks with a recap of our priorities for 2007. As you can see on Slide 5, our focus for 2007 is very consistent with our communications with you over the last couple of quarters. Simply put, our job in the year ahead is to get our business growing profitably and improve our overall operating performance.

The first priority listed on the chart is to lower the rate of post-paid deactivations with the year-end target of below 2% churn. In addition to the expected improvements in involuntary churn we have implemented a number of network and customer service initiatives to improve customer experience and loyalty.

These initiatives range from a significant expansion of our network to investments for improving first call resolution, a single billing platform, in-store and online dynamic coverage maps and a more competitive handset upgrade program. In the fourth quarter, we had a modest sequential improvement in churn despite very high deactivations in the form of Nextel Partners base and we are tracking with our plans in the first quarter.

Second priority we list here is to improve post-paid customer acquisitions. In the fourth quarter we experienced a decline in our gross adds, which was entirely attributable to lower subprime additions following credit tightening actions, along with seasonal factors, reduced subprime take rates will likely impact gross adds in the first quarter.

To address the prime customer focus that we have taken steps to strengthen third party channels, including revamping incentives for both acquisition and retention of prime post-paid subscribers. We stepped up our media spending beginning in the fourth quarter and we expect to maintain higher spending in the year ahead. We are evolving our brand making it more compelling for customers to comprehend our unique offerings, highlighting the capability of our networks.

We are consolidating our advertising efforts, as we've indicated to you, under a single agency which we expect to name by the end of March. Finally, we are in market with a renewed device line-up supported by more competitive market pricing.

The third priority is to continue to build on our wireless data leadership. While we're pleased with our accelerating sales performance in this area, we believe that significant potential remains and we expect to capitalize on this opportunity with the industry's best data services and the largest mobile broadband network. I think this is particularly true as we begin to make available to the iDEN base the capabilities of our CDMA and EV-DO network.

Our fourth priority is to continue to simplify the business to enhance productivity and lower our cost structure as we capture savings and deliver the merger synergies. Cost savings will begin to accrue in the second quarter from our 5,000 headcount reduction announced on January 8th. Our target is to complete substantially all staff reductions by April 1st and we expect this action will lower annual operating costs by approximately $400 million.

The final priority is to build out our next generation WiMAX network to provide unsurpassed wireless data speeds in a different business model and operating cost efficiencies that will be derived. We continue to aggressively assemble all the aspects of this new business and I'll provide some more details on that in just a few minutes.

Turning to Slide 6, we have repositioned this company and I'd like to give you a sense of the new Sprint Nextel following our numerous acquisitions and the local spinoff in 2006. For the full-year we posted $41 billion in revenue, which is an increase of 7%. For the year wireless represented about 85% of our revenues. Our adjusted EPS before amortization was $1.18, which grew 12% from the full year 2005. Adjusted OIBDA was $12.7 billion, a growth of 12%, and we improved our adjusted OIBDA margins by 140 basis points to nearly 34%.

As we indicated on our January 8th call, in 2007 we are increasing funding to improve our competitive position for the longer term. We have temporarily slowed our top line growth to ensure that we improve the mix of our customer base and these facts will negatively impact our margins in 2007, as we've indicated to you.

On Slide 7, I'd like to give you highlights of the progress that we're seeing on the key operating metrics as we make these moves. In 2006 we continued to grow our overall subscriber base and we improved the quality of our post-paid customer base as a result. We ended 2006 with 53.1 million total subscribers. Organic growth contributed 3 million new customers over the year and the Nextel Partners acquisition added 2.1 million subscribers.

On our CDMA platform, we ended the year with 31.5 million subscribers including post-paid, MVNO and affiliates. Our iDEN platform supported 21.6 million subscribers at year-end, including 17.6 iDEN post-paid subscribers and 4 million Boost subscribers. PowerSource subscribers in the fourth quarter were minimal, but we have ramped to about 200,000 at the end of February with a majority of those adds coming from upgrades.

Turning to churn, fourth quarter post-paid churn declined to 2.3% from 2.4% in the third quarter. This decline was primarily driven by lower CDMA churn offset by significantly and disappointing higher churn in the form of Nextel Partners' territory. Overall voluntary churn improved in the quarter and accounted for a little over half of our deactivations. Involuntary churn was also slightly lower sequentially.

Turning to ARPU, in the fourth quarter our post-paid ARPU was slightly over $60, a 1% sequential decline. ARPU decline moderated on a year-over-year basis to approximately 4.6%, in line with our expectations. In the quarter post-paid CDMA ARPU was relatively stable, while iDEN ARPU was under some pressure with a decline of 8% year-over-year. Boost Mobile ARPU was a little over $32 in the quarter. This was down sequentially and compared to fourth quarter last year driven by lower usage. We continue to prepare for the launch of a market trial of unlimited local calling and we see this opportunity to extend the Boost brand to this market segment as a result of that.

On Slide 8, turning to wireless data and our leadership position. In the fourth quarter we posted the industry's highest reported data ARPU of $8.75, which is a 15% of our reported post-paid ARPU. CDMA is driving the overall results and we reported nearly $12 of data ARPU on this platform. Analyzed data revenue now exceeds $4.4 billion.

The Sprint mobile broadband network now covers 209 million pops including 11,000 cities and over 1,000 airports. In addition, our EV-DO Rev A network reaches 110 million covered pops including 400 airports in over 4500 cities. We will continue to expand the EV-DO capability to the vast majority of our network in 2007, which is in preparation for QChat being deployed in 2008 allowing complete iDEN to CDMA and vice versa network interoperability.

Turing to Slide 9, we report on our network progress. In 2006 we invested $7.1 billion into our networks and we spent an additional $400 million on rebanding; intangible costs. This total investment of $7.5 billion came in above our January 8th guidance, which called for a range of $7 billion to $7.3 billion. This was primarily due to accelerated progress on several of our key network initiatives, including completion of a highly anticipated number of cell sits and EV-DO deployments in the final stages of the year. Due to these accelerated deployments, we now expect to have lower capital requirements in the coming year and Paul will provide an update to you on this in his remarks.

In the fourth quarter the rate of voluntary customer deactivations within our CDMA subscriber base reached historically low levels. We believe a major contributor to this trend is the improving network quality following significant investments over the past several years and this has been part of our second to none strategy that we talked to you about before. We believe our customers are seeing the difference. In a recent extensive study published by Mind Wireless for the first six months of 2006, our CDMA network was reported to have the lowest rate of dropped calls among all national carriers and our network only got better in the last six months due to the investments that we just talked about.

The same study suggested there was work to be done on our iDEN network, and as you know, we have made iDEN network improvements a significant focus in our company to improve capacity and call quality. This focus and this investment is also starting to yield positive results with our internal metrics indicating that early in the first quarter the national iDEN network returned to best ever performance going back to 2003 records for dropped calls and blocked calls. Additionally, already most of these capacity constrained markets we indicated to you last year have been resolved and the few remaining will be so by the early second quarter.

Now let me turn to Slide 10 for update on wireline where we continue to see relatively stable performance. For the quarter revenue was $1.6 billion, representing a slight decline of 2% year over year and a modest increase sequentially. As expected, we reported declines in the consumer and business voice service, but this was offset by very strong growth in MPLS and our cable telephony business. The number of MPLS ports increased by approximately 50% in 2006.

Full year adjusted OIBDA on long distance was nearly $1 billion and again exceeded our original projections. These results reflect our focus on acquiring profitable business and very good cost control.

In addition to strong growth in VoIP services through the enterprise segment, we continue to see very good growth in the cable telephony opportunity. We now serve more than a dozen MSOs and the cable telephony subscribers have reached nearly 1.5 million. In 2007 we expect to double the number of subscribers served by this business.

Now I'd like to turn to Slide 11 to discuss our progress on two of our key strategic initiatives. Our wireless cable joint venture continues to move forward. The JV has now launched six markets commercially and we have scheduled more than 40 markets to be launched by the end of 2007.

Initial product development for video, e-mail, portal voice mail and handset integration is on schedule. We've also completed the very important steps of linking our billing and service platforms. Additionally, development continues on automation and new products that will be launched during the course of 2007. Although the contribution for this joint venture is in its early stages, we expect that subscribers in this JV to ramp during the course of 2007 and to be a solid contributor to our business results in 2008.

Turning to WiMAX, we are building good internal momentum on this project and we are very pleased with the progress and the vendor and support device community. In January we announced Nokia would be our third key infrastructure provider and they will also be a consumer device supplier. We have awarded the infrastructure contract for initial two WiMAX markets of Chicago and Washington D.C.-Baltimore to Motorola and Samsung respectively. We expect to have infrastructure deployed in these markets by the latter part of this year and commercial service available in early 2008.

We've also seen significant progress on devices and chipsets. Intel has completed design of a single chipset multiband WiMAX WiFi chipset. Samsung has committed to delivering six WiMAX capable devices and plans to the WiMAX chipset business itself. Motorola has announced strategic initiatives to develop mobile WiMAX chipsets for use in Motorola's next generation devices and Nokia committed to embedding WiMAX wireless capabilities into significant volumes of consumer electronic multimedia and Internet tablet devices. Finally, LG Electronics committed to develop multimedia devices to work on Sprint's WiMAX network. So as you can see, significant progress underway on many fronts.

At this point in time, I'd like to thank you for your interest and turn it over to Paul.

Paul Seleh

Thank you, Gary and good morning, everyone. My remarks today will describe the key business trends which we experienced exiting 2006 and how our action plans are expected to play out over 2007. As shown on Slide 13, we met our full year guidance for revenue and adjusted OIBDA. Revenue was $41 billion, up 7% over the prior year led by acquisitions, the growth of Boost Mobile and our wholesale business. Our revenue growth was partially offset by lower equipment revenues in the core business and a 4% year-over-year decline in long distance revenues.

Full year adjusted OIBDA increased by 12% to $12.7 billion as we benefited from our acquisitions, significant merger synergies and greater profitability from Boost. For the full year, the adjusted OIBDA contribution from the long distance segment was modestly lower by 5%, but was slightly ahead of our expectations.

Turning to Slide 14, we have set guidance for 2007 of $41 billion to $42 billion in total revenues and 11 to $11.5 billion of adjusted OIBDA. On the revenue side we expect near-term pressures in our top line growth due to a lower post-paid customer base. Sequentially, we expect to report a similar number of post-paid subscriber losses in the first quarter of 2007 and post-paid net adds are expected to be positive in the second quarter and ramp up for the remainder of the year as our sale initiatives begin to take root and we make additional progress on customer retention. We are expecting the decline in post-paid ARPU to moderate in 2007 versus 2006.

On a platform basis, we are experiencing stable ARPU trends for CDMA as data growth continues to offset much of the decline in voice. ARPU from iDEN subscribers is likely to remain under pressure in 2007, but the data ARPU opportunity for iDEN subscribers is expected to increase with the deployment of 2 to 3 million PowerSource phones. Finally, our broader EV-DO footprint should help support our fast-growing Air Card business. In 2007 we expect Boost Mobile to continue to be a contributor to top line growth.

Our wholesale business continues to do well and we expect solid growth rates again in 2007. For 2007 we expect long distance revenues to decline modestly in line with recent trends, and we plan to increasingly focus on selling IP-based services and over time we expect to de-emphasize selected legacy products and services. Adjusted OIBDA in 2007 of $11 billion to $11.5 billion reflect our changing revenue mix and the impact of incremental investments to improve our business.

On the network front, we accelerated deployment of coverage and quality sites during the fourth quarter and we're hitting the ground running in 2007. We're expanding our CDMA footprint, improving call quality and expanding our wireless broadband network. These actions will drive approximately $300 million of incremental network operating expense over the course of 2007.

Another area of investment is in media spending. We expect to increase our annual spend by approximately $200 million in 2007 to strengthen the public perception of Sprint's network, value and capability. Network-related messaging will expand significantly. Our advertising will also highlight the value that Sprint offers with its PowerPack line up. We will continue to feature our differentiators: PowerVision high-speed data services and our industry-leading push-to-talk capabilities. In 2007 our business related advertising spend, including our wireless broadband PowerSource handsets and PDAs will increase more than 25% in support of a growing area of our company. On the consumer front, we will increase our local spending on print ads and other targeted media outlets.

A third area of investment is in wireless handsets and upgrades. We launched eight new devices in the fourth quarter including ultra-thin CDMA devices and two PowerSource phones which utilize the iDEN network for push to talk and the CDMA network for cellular calls, messaging and wireless Internet access.

We expect to experience higher subsidies in 2007 as a result of introducing more competitive handset pricing and upgrade policies during the fourth quarter. We believe these actions should improve customer satisfaction and retention rates while better positioning Sprint to capture a growing share of prime gross adds. Additionally, these new handsets provide Sprint with a greater opportunity to sell new high-speed data services. Now, we are working with our device manufacturers to help mitigate some of our subsidy investments. The outcome of these discussions may cause us to shift volume among these device manufacturers.

A fourth area of investment is third-party distribution. As Gary noted, we revamped compensation for indirect dealers in October, creating incentives for attracting prime subscribers and providing higher compensation opportunities for improving customer retention rates. These plans are designed to reverse the meaningful decline and indirect sales productivity which the company experienced last year and drive higher retention rates.

The fifth area of our investment is in customer care and base management. We have extended our assigned representative program to business accounts as small as 25 units. Additionally, we have equipped our existing and prospective customers with self-service tools and we are investing in key infrastructure projects designed to improve call handling time and faster call resolution. Overall, these investments will negatively impact adjusted OIBDA, but we also expect greater cost efficiencies and merger synergies to increase as the year progresses.

On Slide 15, I have outlined the major drivers of our expected cost efficiencies in 2007. We are rationalizing our distribution channels. In 2006 we reduced the total number of doors or points of distribution by 10% and we closed approximately 260 retail stores and kiosks. Our plans for 2007 include closing another 300 stores and kiosks. We reduce our real estate needs by over 2 million square feet in 2006 and we have plans to eliminate nearly 1 million additional square feet of space in 2007.

We're well on our way with the consolidation of our billing system, which also integrates key customer facing areas of the business, including sales, care, and reporting. Nearly 40% of the post-paid subscriber base is already on the new billing platform and we have plans to migrate large number of our existing subscribers in the coming months so that we'll be finished with this conversion in the fourth quarter. We also plan to deploy our new integrated point of sale system beginning in the second quarter, which should dramatically improve the front-end customer experience and streamline the order entry process.

Human resource systems and payroll converted to a new integrated platform on January 1st of this year. Our financial system conversion is slated for this summer and we expect greater productivity gains from these investments. Our supply chain management team has been incredibly busy renegotiating 30% of contracts in 2006 and preparing to renegotiating the remaining contracts in 2007 and 2008. Thus far, these efforts are expected to generate approximately $800 million of synergies over time. Lastly, we announced that our workforce reduction is well underway. The majority of these positions will be transitioned by April of this year.

Next, I'll discuss capital spending on Slide 16. Please note that these capital expenditure figures do not include the non-network-related component of rebanding, which was approximately $420 million in 2006 and could be as much as $800 million in 2007 as shown in Note 1on the slide.

Our $7.1 billion of capital investments for 2006 can be broken down as follows. We invested approximately $5.9 billion on our wireless network, the balance across CDMA and iDEN. We exceeded our year-end targets for CDMA sites by 20%. We overachieved our site development milestones for future sites and we virtually doubled our coverage goals for EV-DO Rev A to 75 million pops. We made significant investments in iDEN, which included tactical market-by-market improvement plans to enhance capacity and optimize network performance while reducing our reliance on the 6:1 [inaudible]. These actions drove vastly improved call blocking drops and audio quality.

Also included in our wireless spend is approximately $250 million related to rebanding. In 2006 we invested approximately $800 million in support of our long distance business, preparing the network for continued growth and cable telephony and MPLS as well as strengthening our core transport capability. In 2007 our plan is to spend $7.2 billion in capital. For the wireless segment we expect to spend $5.4 billion as we increase our capital allocation towards CDMA to support our PowerSource initiative, expand the CDMA footprint significantly, and maintain our leadership in wireless broadband coverage.

We plan to add more than 4,000 cell sites and we expect to cover approximately 230 million pops with EV-DO Rev A. Also included in our wireless spending for 2007 is about $100 million of rebanding capital. We plan to spend $600 million on long distance in support of MPLS and IP services and we plan to spend up to $800 million on WiMAX in 2007, which is expected to include site development, radio access network, and other RF engineering projects.

Turning to Slide 17, Sprint Nextel remains focused on maximizing shareholder returns. We're targeting strong returns on our capital spending and operating investments. We're in a solid financial position. We generated free cash flow of $421 million in the quarter and $2.8 billion for the year. We ended 2006 with $20 billion of net debt. We have $2 billion of cash and marketable securities on hand. We maintain an investment grade rating, net debt to annualized OIBDA is approximately 1.6X and our average cost of debt is about 7%.

During the fourth quarter, we issued $2 billion of ten-year debt at a rate of 6% and we used the proceeds to refinance $1.8 billion of existing debt. We will consider other refinancing opportunities as appropriate to strengthen our balance sheet, lower capital costs, and enhance flexibility.

We've been returning cash to shareholders in 2006, including a $300 million in dividends and $1.6 billion share buyback. We still have $4.4 billion remaining under the current program. Sprint Nextel will vary the amount and timing of our common stock purchases from time to time.

In summary, our plans for 2007 build upon and enhance the operational actions that our company implemented in the second half of last year. While these actions will impact near-term profitability, we believe they will position the company for long-term success and drive greater shareholder value over time.

Now I'll hand the call over to Kurt for Q&A.

Kurt Fawkes

Thanks, Paul. Before we get to the questions, I want to point out that an audio only and webcast replay of this presentation is on our web site, that's at www.sprint.com. It should be available shortly following our completion today. So now we're going to open the line for questions. Operator, could you please instruct our participants on how to submit their questions?

Question-and-Answer Session

Operator

Yes, sir. (Operator Instructions) Your first question comes from Thomas Lee – JP Morgan.

Thomas Lee - JP Morgan

Good morning. Thanks for the all the enhanced disclosure with regard to operating results. As I think about the challenges and the initiatives you guys outlined over the next year, one of the things that really struck me is that the real evidence of this turnaround will be seen when customer growth turns positive. Paul, I know you reiterated that would happen in the second quarter.

I'm kind of curious about the components of that. If I look at your fourth quarter results and based on your comments about 1.3 million CDMA net adds, it implies that post-paid CDMA growth was 424,000 positive before and iDEN had negative 730. If Q1 as you said, persists in the same overall post-paid losses, I'm curious, is that with CDMA post-paid maintained at 400,000 level and with iDEN contracted by 700? And then as we think about Q2, is that turn and positive really coming from iDEN losing less or is it from both sides turning positive? That'd been very helpful, thanks.

Gary Forsee

Let me start with maybe some top line comments. I think part of the underpinning of our plan for this year has been to ensure that our iDEN network performance would allow us to again take back to where we were in the second or third quarter to allow us to begin to offer up for post-paid prime acquisition, that network, again, and as I indicated we're now performing at best ever levels on dropped calls.

My comment about by early second quarter, all of those markets that were capacity constrained that really throttled our growth and prohibited, particularly our third parties last year, from achieving what we all had in mind coming into the year, that story is now becoming an old news story and, again, will be a very significant part of that plan to get iDEN growth going.

At the same time, CDMA is doing as well as it's ever done and that's witnessed by voluntary churn, by the investments that Paul outlined. I think we're set up, if you will, for the underpinning, which has always been viewed, in my mind, as table stakes for our strategy of mobility services and our strategy of broadband platforms that we're deploying. We're now set up with these two networks being ready for that.

I think the final point is the PowerSource phones are working incredibly well. We're getting win back opportunities from agencies and business customers, perhaps that left us due to call quality, PowerSource is being seeded out in the marketplace and the receptivity is very strong and that only gets better as we move into the later stages of the first quarter and second quarter with EV-DO available PowerSource devices. So again, we are set up with those underpinnings for that to take place.

The final point I'd make -- and Paul may want to add to that is -- we did make significant investments in the third party distribution channels to again, get them focused on the business model we want going forward, particularly on iDEN, which is post-paid time. And again, business-oriented customer applications around that core iDEN user.

So those initiatives kicked in in third quarter/fourth quarter and we topped that off with a national dealer meeting a couple of weeks ago. That collective set which makes up a vast majority of our doors, if you will, are really enthused beyond any point we've seen them for a number of quarters and the opportunity we have to get them going again, which obviously bodes well for 2007.

Paul may have some specifics to add to that.

Paul Seleh

No, actually, Gary, you covered it all. I would just mention that we have been really pretty tight on our credit. As a result of that, we've seen our subprime growth that'd drop by about 35% as a result of the actions that we have taken. We also, as Gary mentioned, expect an improvement in our distribution channels productivity and starting to pay off in the second quarter.

I also point out to you in your math is that partners has also been a drag on the iDEN performance. Partners churn is a little north of 4% right now, and we expect, again, through the course of 2007 to see improvement in the churn in that business.

Gary Forsee

I think I'd just cap that off by saying that this mix change that we have seen across both platforms, obviously, that did have an impact on gross adds. At the same time we like those early results that that change in customer mix will provide over time. Obviously we're taking the short-term hit in growth, taking the short-term hit in top line performance, but that is, again, an equation that we're willing to undertake as we, again, set ourselves up for long-term shareholder gains here.

Operator

Your next question comes from Jason Armstrong - Goldman Sachs.

Jason Armstrong - Goldman Sachs

Just let me ask the portfolio question, which is sort of revisiting the logic for having the long distance business and how since you made that decision, the market's appetite, the potential valuations attached to these type of businesses I would argue are substantially better and there's arguably a chance you can really unlock value there.

So are we approaching a tipping point where you might consider options with that business or is there too much of a strategic fit internally to where you really wouldn't consider that? Thanks.

Gary Forsee

I think it is so fundamental to our mobility strategy. It is the underpinning of our wireless networks, it's underpinning of our IP strategy with enterprise customers, our ability to be a single source as business customers and enterprise customers, in particular, think about evolving their networks from ATM and frame to IP and MPLS center networks and allowing us to have a discussion about broadband capabilities for fixed and mobile.

The underpinning of that is that long distance network, if you will. We are not a typical long distance company anymore. We have continued to finetune that portfolio and, as you know, focus on the things that we think can create value and that's where the cable relationship comes into play with the 12 contracts that we have. That is a substantial part of why we are relatively stable both in revenue as well as margin stability and, again, posted results for the year that were ahead of our expectations and yours, as well. So it is core to our strategy. It's integrated from a network operating perspective.

We continue to run that business in a way that is geared for the future as opposed to what it was in the past and continue to move away from businesses like consumer standalone voice or business standalone voice that aren't geared toward mobility services that take advantage of our platforms that we're pointed toward for the future.

Operator

Your next question comes from Chris Larsen - Credit Suisse.

Chris Larsen - Credit Suisse Securities

First on the QChat and coupled within that, does it work on Revs 0 or does it have to be the Rev A so that means you have to get everything Rev A? And then if you could give us a progress report on how the QChat is actually working relative to when it might be commercially available.

Secondly, on the WiMAX devices, what your thoughts are on commercial availability? I know, Gary, you went to great lengths to say there's going to be a lot of product out there, but when the timing of that commercial availability is and which devices you're the most excited about. Is it the Intel chips that might go in the laptops or is it going to be the consumer-oriented devices and when we might see the timing of either of those? Thanks.

Gary Forsee

On QChat, and as we've reported before, the technical road map that we had in mind in December of 2004 as we launched the merger has stayed on track if not ahead of track and that relates certainly to delivering and deploying now PowerSource, or hybrid phones that work off iDEN for push to talk and on CDMA EV-DO for voice and data capabilities and QChat being the next step of that, which again, will allow the transition for these two networks to over time become one network start to take place in '08.

The QChat technology is on track. It does require deployment of EV-DO Rev A. As you recall from a couple years ago as we set up the EV-DO network, we set up that in a very engineering and technical astute way because EV-DO Rev A becomes an easy upgrade to make in the network and a very efficient way to do that. So that is why we've accelerated, we've stepped that up and we're obviously getting a better performance out of our EV-DO network as we do that.

The devices, certainly early on, it will be more of the laptop and more of the embedded chipset devices in traditional capabilities, but over time, as you know, we also have a business model in mind that embeds chipsets in consumer electronic devices that don't exist today unless in some modicum of Wi-Fi capabilities. So that will be a later on capability looking into the '09 time frame, but early on it's more of the Air Card-type or embedded chipsets in PDAs and other traditional devices that we would be associated with.

Chris Larsen - Credit Suisse Securities

Gary, is Intel indicating to you that they should be commercially available this year or early in '08?

Gary Forsee

No, this is in '08. Again, we want some elementary device capabilities to be ready as we launch the first two markets of Baltimore, Washington, and Chicago, but this is a latter part of '08 story.

Paul Seleh

I'd like to add something to the question on QChat. We will also have in our network later this year the ability, a gateway that enable our customer who are on iDEN to push to talk to customer who are going to be on CDMA using the QChat capability.

Gary Forsee

Maybe not let me miss an opportunity, Jason Armstrong ask about portfolio and how to highlight value. Certainly our WiMAX business plan is predicated on the 2.5 spectrum that we have with some incredible spectrum position. It's two times what any other competitor company would have in terms of its overall bandwidth and capability in terms of spectrum coverage. So we have an incredible asset and certainly we will look for astute and smart ways over time to demonstrate that value.

Operator

Your next question comes from Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley

You still have a couple billion dollars in cash on the balance sheet at the end of the year. Could you talk a little bit about some of the uses this year? Your buyback really seemed to slow in Q4, just over $100 million. How are you thinking about the scale of buyback this year? Any updates and thoughts about some of the remaining affiliates in terms of buy-ins and then the 700-megahertz auctions are coming up, that could give you some great spectrum at the lower bands. Thanks.

Paul Seleh

We indeed had $2 billion of cash at the end of the year. Our objective is we actually are going to be cash flow positive in 2007. We're going to generate cash flow. So we indicated that we had still a buyback program with $4.4 billion of authorization on it. And so we'll look at using our cash opportunistically for that purpose.

Gary Forsee

700-megahertz at this time, Simon, we would have no interest and participation in that. We've got the best spectrum position of any of our carrier competitors, and at this stage would have no interest in participation.

Paul Seleh

As far as the affiliates are concerned, there's always been a return on investment type of discussions among other things. Right now we feel that we have better use of our capital.

Operator

Your next question comes from Ric Prentiss - Raymond James.

Ric Prentiss - Raymond James

I want to ask my question focusing on your expanding the wireless data leadership area. Your commercials on the Connectile Dysfunction certainly have caught a lot of attention. Can you update us as far as when does this move beyond the Air Cards? When do we start seeing the handsets and kind of other services that 3G can bring to consumers really emphasized in the marketplace and the advertising?

On your 4G side, the WiMAX, can you update us as far as where the standard bodies are as far as getting WiMAX developed and deployed? Also you mention in your slide, I think options for supporting build out under active consideration. Gary, any other color you can give us on what that means?

Gary Forsee

Let me maybe start with WiMAX first and then come back to the 3G or the EV-DO and capabilities consumer business. On WiMAX, on January 8th we gave the same indication that we will look for opportunities either with our existing partners, which is a very strong lineup of Intel, Motorola, Samsung, and Nokia, and they have made significant commitments and we'll provide more commentary on that later this year, or specifics beyond infrastructure and device commitments.

Setting that aside, there is a very significant amount of interest from partners that would either have a role in the deployment of WiMAX and that could run the gamut of system integrators, portal providers and so forth, that would also like to have an opportunity to get a return on making an investment in that build out. So that runs the gamut of those type that would have a role or others that may have a use for the services.

As we've indicated very transparently before, our relationship with the cable partners that are in our joint venture, there is a path for their participation either on the current basis, which is an agency basis or from an investment basis. Those discussions, obviously, took place last year and would continue this year as that network becomes more of a reality. Beyond that, obviously, there are other types of investors that could be considered.

So we'll look at that, but obviously as we do that, then there's a value proposition that we want to be sure gets illustrated and at the same time, we think this is a very valuable business for us in the future and we want to retain as much of that as we can.

Related to this data strategy and our near $12 ARPU on the CDMA platform, I would offer several points. As we start to deploy EV-DO capable devices with PowerSource, then the iDEN ARPU, which is below $5, we're going to have a chance for those applications that heretofore have been on the iDEN network that have been business centered whether that's navigation, whether it's business productivity applications, those are all going to have a chance to be working off of that EV-DO network. So we think that in and of itself is a significant opportunity as that base takes advantage of the PowerSource phones. That would be the first point.

Today, though, we are the leaders in the gamut of consumer-oriented applications whether that's music and we have a lot to say about that over the next couple of months. Whether that's MOBiTV services, we are the leaders in TV capabilities with over 50 channels available on our service today. So our opportunity to continue to make that easy to use, I think, again, will continue to unlock the potential for the investments that we're making. But I think with our data ARPU at $12 and with all of the commentary we've given you in the past about the consumer-oriented aspects of those applications, I think we're in good shape to continue to take advantage of that.

I think sky's the limit, frankly, on business customers that again can continue to develop and design their business model around the capabilities of a broadband mobile network. There's lots of things going on there.

Mark Angelino is here with me this morning. Mark runs all of our sales and distribution enterprise to consumer. I don't know, Mark, if you want to add any commentary about business customer applications? Because I think that, we tend to talk about consumers, which drive a lot of the early hype and demand, but business, we're really unlocking some unique applications. You may want to talk about a couple.

Mark Angelino

Well we obviously have had a lot of success with navigation, the web, messaging, you mentioned music and video for the consumer. On the business side, we've had a lot of success in the last couple of quarters on PDAs and we have some new PDAs that are coming out that will drive a significant amount of data revenue. We've also got a number of product extensions, which you'll see in the 3G area around EV-DO where we've previously used just the PCMCIA Air Card now we have new form factors, the PCI express and the USB card. We've got embedded relationships with several providers. We also have a new relationship that will be coming out with a major networking provider that will embed EV-DO as a backhaul technology.

On the application front, we continue to push the industry solution. We've had great success in utilities, transportation, our core segments, but now in recent quarters, we've also enhanced the applications available for healthcare and for education, which are very fast-growing segments for us. We're expecting deep double-digit growth in data in '07.

Gary Forsee

Ric, I think the comment was that it definitely bridges beyond Air Cards. I mean that's the obvious and the most apparent. But this will be about applications being developed and Mark mentioned, some of the verticals whether it's healthcare, education, utilities, transportation, retail, you know, we have an incredible focus on turning this broadband network and finding applications that can be customized for those type of vertical industries.

Operator

Your next question comes from Tom Sykes - Lehman Brothers.

Tom Sykes - Lehman Brothers

Gary, can you go into a bit more detail on the performance and customer acceptance with the iDEN CDMA phones? I think you put a couple hundred thousand of these phones in customers' hands in fourth quarter and I'm wondering if you can share in a bit more detail more of the early results with us?

Gary Forsee

Yes, let me take a shot at that and maybe Mark may want to jump in on this one, as well. Really in the fourth quarter, we were just ramping up. We were filling the distribution pipeline and so the 200,000 number really reflects our results this year through the end of February, actually. To really facilitate making this a smooth transition and a smooth launch we spent an incredible amount of time last year mapping the networks because you didn't want to take a great iDEN experience that may have been revolved around a custom network solution and then put that in the context of a CDMA network that may have not been customized for a particular customer, so we had to be sure that right down to the account level, right down to the mapping level that these networks mapped in terms of coverage capacity capability and so forth.

So that work really laid the ground to have what I would consider one of the best product launches that I've ever seen in terms of being able to meet the expectation of a great push to talk capability off of one network and the best voice and data capability off the second network.

So the receptivity has been early on where we have ceded, if you will, to users that we wanted to be sure had that better experience, maybe users that had been, experienced some of the issues that we had last year of call quality, where we were coming out of those markets that as a result of either 6:1 utilization, the rebanding initiative and so forth that now have experienced the better network performance, but we want to be sure we got out there and got ahead of that. So a lot of that preselling was down in the third and fourth quarter, now we're taking advantage of that with the deployment.

Operator

Your final question comes from Michael Rollins - Citigroup

Michael Rollins - Citigroup

The first question is, was there a specific reason that you didn't buy back a substantial amount of stock in the fourth quarter?

The second question I had is, as you do more of the hybrid phones, is that pushing the subscriber base from iDEN to CDMA? Did that have an impact in the fourth quarter that we should consider in our review of the numbers? Thanks.

Gary Forsee

Yes, I'll take the second part on as we push the PowerSource capability. We gave you a lot of very specific platform information this morning. We did that to be sure that you knew the capability that now is back in the iDEN network and the investments made in CDMA.

Over time, we'll be talking more about the combined entity as the PowerSource phones are deployed and we expect to go from the hundreds of thousands into the millions in the course of 2007. So it's taking advantage of both platforms, Michael, and that has been the intent where we get best-in-class push to talk services that will, in fact, be replicated with QChat in '08.

But the opportunity we have in '07 to introduce voice and data services to that iDEN base and retain the push talk capability has been part of the plan and something we're very enthused about and the customer receptivity supports that.

Paul Seleh

Mike, as far as the fourth quarter, we reported our results pretty late in the third quarter results, I think it was late in October. We went into a blackout period mid December or so just because of the planning that was taking place for 2007; we remain in a blackout period. We were limited in having access to a window for repurchasing shares.

Gary Forsee

Let me go back to Mark Angelino, maybe just to kind of a wrap-up comment on PowerSource to be sure that we nail that one.

Mark Angelino

We've had that continuing, I'd say, week-over-week improvement in both gross business and upgrade business for the PowerSource phone. Predominantly on the back of the fact it's a redundant service, so we've seen a lot of strength in the industry segments like the public sector where we've had customers coming back to us who had previously decided to chose other services, now with the opportunity to have a voice service that's significantly better than in the past several quarters on iDEN.

So the CDMA voice is superior, the data service is superior with the faster vision products, product on this device, and it continues the momentum with push to talk, which is important as we transition customers going into 2008. So a lot of really positive experiences and a part of customers' better voice, better data and has segment potential for us.

Kurt Fawkes

Thanks Mark, thanks Gary and thanks Paul. Thank you, everybody for joining us this morning and again, if you have follow-on questions, please feel free to give us a call in Investor Relations today, we'll be available. Have a good day.

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