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Alltel Corporation (AT)

Q1 2007 Earnings Call

April 27, 2007 8:30 am ET

Executives

John Ebner - Senior Vice President, Investor Relations

Scott Ford - President, Chief Executive Officer

Kevin Beebe - Group President, Operations

Sharilyn Gasaway - Chief Financial Officer, Executive Vice President

Analysts

Thomas Lee - J.P. Morgan

Tom Seitz - Lehman Brothers

David Janazzo - Merrill Lynch

Mike Rollins - Citigroup

David Barden - Banc of America

Jason Armstrong - Goldman Sachs

Phil Cusick - Bear Stearns

Simon Flannery - Morgan Stanley

Chris Larsen - Credit Suisse

Jonathan Atkin - RBC Capital Markets

Presentation

Operator

Good morning. My name is Beverly and I will be your conference operator today. At this time, I would like to welcome everyone to the Alltel 2007 first quarter earnings conference call. (Operator Instructions) Mr. Ebner, you may begin your conference.

John Ebner

Thank you. Good morning, everyone. Welcome to Alltel's 2007 first quarter conference call. My name is John Ebner and I lead treasury and investor relations for Alltel. Thank you for participating in this discussion of our first quarter results.

Today’s conference call was preceded by our first quarter 2007 earnings release. This press release has been distributed on the newswires and is available from our website at www.alltel.com. Today’s conference call should be considered together with our press release and related financial information.

Today’s discussion includes statements about expected future events and future financial results that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to uncertainties that could cause actual future events or results to differ materially from those expressed in such statements.

Other factors that could cause actual results of Alltel to differ materially, many of which are beyond the control of Alltel, include but are not limited to the items listed in the Safe Harbor statement contained in our first quarter 2007 earnings press release. Additionally, today’s discussion will include certain non-GAAP financial measures. Again, we refer you to the investor relations section of our website where we have posted our earnings release and supplemental materials which contain information regarding these non-GAAP financial measures, including a reconciliation of each such measure to the most directly comparable GAAP measure.

Note that a live webcast of this call is available on our website. To access the call, go to the investor relations section and click on the live webcast link.

Participating in our earnings discussion this morning are Scott Ford, Alltel's President and CEO; Kevin Beebe, Alltel Group President of Operations; and Sharilyn Gasaway, Alltel Executive Vice President and Chief Financial Officer.

At the end of our prepared remarks, we will take a few questions. With that, here is Scott Ford.

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Scott Ford

Thank you, John, and good morning, everybody. This morning I am going to cover the highlights from our record-setting first quarter. Kevin will cover the key operational items and Sharilyn is going to walk you through a review of the financials.

On a GAAP basis in the first quarter of ’07, Alltel earned $0.64 of fully diluted EPS, which includes one-time expenses and several other items disclosed in our supplemental material. From current businesses through, Alltel earned fully diluted earnings per share of $0.63, which represents an increase of 47% over the first quarter of ’06. This is impacted by the deleveraging from the wireline spend, ongoing share repurchases, and both organic and acquired growth.

In the first quarter of ’07, we generated $359 million of equity free cash flow, an increase of 36% year over year on growth in total revenues of 13%. Service revenue of $1.88 billion, OBIDA of $710 million, and net adds of 237,000 were all at record levels.

Our OBIDA margin increased 130 basis points year over year to 37.8% while we also grew gross adds 8% over the same time. We are obviously very pleased with our exceptional first quarter operating and financial results, which gets us off to a very strong start for the year.

As to our share repurchases, in the first quarter we acquired 15.3 million shares for a total cost of $939 million. Since the inception of this program through the end of the first quarter, we have returned almost $2.7 billion in cash to our shareholders through regular quarterly dividends and the acquisition of approximately $44 million shares at an average price of $58 a share. The repurchased shares represent 11% of the total shares outstanding at the time of the authorization.

We expect to be substantially complete with our $3 billion repurchase authorization some time next month.

At this time, I would also like to take the opportunity to thank the entire Alltel team for an outstanding job in the first quarter. As we have said, 2006 was the busiest and most challenging year in Alltel's history and the entire Alltel team followed that up by delivering record-setting financial and operating results in the first quarter. I want them to know how much I appreciate their continued dedication and hard work and want to remind them that amidst all the turmoil of the year, we have to keep our eye on continuing to perform.

As to the strategic review process we outlined on last quarter’s earnings call, we will not be providing any update or comments on that process today, except to say that if and when a conclusion is reached, we will notify the public at the appropriate time.

With that, I will turn the call over to Kevin.

Kevin Beebe

Thank you, Scott, and good morning, everyone. Wireless gross customer additions were 867,000 for the quarter. That is up 8% year over year and for the second quarter in a row, we achieved record-setting net additions, which were 237,000. That is up 44% year over year.

Post-paid additions were 109,000. That is more than twice the level we achieved in last year’s first quarter, and prepaid net additions were 128,000. That is higher than the previous quarter due to seasonal trends.

Our post-paid churn was 1.33% and our total churn was 1.77%. This is the fifth consecutive quarter that both metrics improved year over year and they represent record lows for Alltel. Multi-year efforts devoted to all aspects of customer service, as well as innovative offerings such as My Circle, are driving those strong customer metrics.

ARPU of $52.49 in the quarter was up 2% year over year. Retail ARPU of $46.88 was up 1% year over year and sequentially, as continued growth in data and ETC revenues offset declines in voice revenue.

Data revenue per customer was $4.70 in the quarter. That is an increase of 64% year over year and 14% sequentially. Data revenue is now 10% of retail revenue per unit. We expect our data revenues to continue to be a big part of the growth story in 2007.

In March, Celltop, our exclusive user interface technology that offers our customers an easier way to access, manage and organize data applications, was awarded best in show by the Wireless Industry Trade Group. This award is another recognition of our commitment to offer innovative and advanced applications that enhance the value of our customers’ wireless experience. Right now, Celltop is available on two handsets with three more to come next month. We expect it to be available in over 10 handsets by the end of the year.

Turning quickly to our wireless wholesale business, roaming revenue in the first quarter increased 2% year over year as growth in minutes and data usage on our network outpaced contracted price declines.

We are obviously very pleased with the record-setting customer growth and revenue performance in the first quarter. Thanks to all of the Alltel team.

Let me now turn the call over to Sharilyn who will discuss our financial results.

Sharilyn Gasaway

Thank you, Kevin, and good morning, everyone. In the first quarter, we achieved $0.64 of fully diluted earnings per share on a GAAP basis which includes, as covered on last quarter’s call, a gain on the disposal of equity securities as well as the amortization of purchased wireless intangible assets, integration expenses and other charges.

Excluding these items, we achieved $0.63 of fully diluted earnings per share from current businesses on a 360 million average share count. We ended the quarter with approximately 350 million basic shares outstanding.

For the quarter, Alltel generated $1.88 billion of service revenue, an increase of $231 million, or 14% year over year. Retail revenue grew 13% year over year and was driven by our continued focus on quality customer adds and increases in data and ETC revenues. In the first quarter, ETC revenue was $80 million, up 42% year over year.

Total cash costs per customer were $32.66 in the first quarter, essentially flat from a year ago and down 1% sequentially. These costs are down approximately 2% year over year when excluding the cost related to the wholesale transport revenues.

In the quarter, continued improvements in bad debt expense, as well as lower roaming expenses derived from lower cost per minute were the primary contributors to the overall improvement in adjusted customer call.

As I mentioned on last quarter’s call, we are still providing various transition services to Windstream. These expenses paid by Alltel and billed back to Windstream at cost have no impact on our margins but are grossed up in our transport revenue and cost of service expense. We recognized approximately $17 million in invoices this quarter and expect this process to be substantially transitioned to Windstream by mid-year.

For the quarter, OBIDA of $710 million was up 18% year over year for a 37.8% service margin, a 130 basis point increase from a year ago.

Depreciation and amortization increased 20% year over year and 9% sequentially, driven largely by the accelerated depreciation of certain assets as we continued to upgrade our network with EVDO. This increased depreciation and amortization was contemplated at our ’07 guidance that was included in our supplemental materials last quarter.

Other income declined $7 million sequentially, as our average cash balance fell. Our tax rate was 39.5% and was in line with the expectations set forth in our 2006 10-K.

Capital expenditures for the quarter totaled $170 million and we ended the quarter with a net debt balance of approximately $2.2 billion.

With that, we will now take a few of your questions. Operator, please review the instructions and open the call to questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first question comes from the line of Thomas Lee of J.P. Morgan.

Thomas Lee - J.P. Morgan

Good morning. Congratulations, by the way -- extremely, extremely high quality numbers. I have just a couple of questions, and they might seem rambling but they are just really sort of tied I think into the way you guys are viewing the industry. The first question I have is just on the 700 megahertz auction. I know it is something you guys have been following closely. I would be real curious if you could give us an update in terms of your expectations for when you think the auction may actually come in. And then also, your general sense for when you -- I know you guys actually have some interest in the spectrum, when you think you actually may be able to put that to use.

The second relates to just the data piece. I actually think -- the 10%, obviously huge progress that you guys have made in the past year and it represents a large chunk of growth. I am curious if you see that gap closing. I know there are a lot of carriers now that are at 16% and clearly that represents a lot of incremental revenues for you guys to get there.

Lastly, just on the stock repurchase, if you guys are -- it sounds like, as you guys mentioned in your opening remarks, that you are pretty close to completing the existing program. Once you are there, given your still substantial financial flexibility, I would love to hear your thought process on what you may consider doing with your capital at that point. Thanks.

Scott Ford

Tom, thank you for the kind remarks. I am going to take your first and third question and Kevin is going to take the data question, if that’s all right. I apologize if you are disappointed with my answer.

I think as you look at the 700 megahertz auction, when it is going to start, we don’t know. We are following it every day just like everybody else and everything that we now, everybody else knows. What we might do about it and how we might do that, I am going to leave under the bucket of things that we are not going to talk about today.

Also, on the stock repurchase as that pertains to our balance sheet, and our balance sheet then gets folded in to what our strategic options are, I am going to go back and just have to reiterate that on things of that nature, which we sometimes talk about, on this call we will not provide any update or comments on that process today.

Kevin Beebe

Tom, the 10% is a nice increase, as you said. I do think, and we are closing the gap between the rest of the industry, at least some of the larger companies and us. I think a couple of things we have planned as we go through the rest of year, one I mentioned -- Celltop. The early returns from customers that have Celltop on the two handsets that we offer today are very compelling in terms of an increase in data usage because we are simplifying the way the customer can get to the host of different data applications we have.

On the consumer side, I think easier user interfaces is an important part of our plan for the rest of the year and beyond. It was nice to get the recognition we got for Celltop with the team of people here that worked very hard to make that happen.

Secondly, I think in the enterprise space, the footprint that we now have with Sprint and the roaming network I believe is beginning to help us to market a larger high-speed network than we’ve ever had and it’s up to us to take advantage of that. We are going to continue to drive that throughout the year.

Those are two I think real key things that we think will come together to help us to drive more data growth.

Thomas Lee - J.P. Morgan

Great. Thank you, guys.

Operator

Your next question comes from the line of Tom Seitz of Lehman Brothers.

Tom Seitz - Lehman Brothers

Good morning. Thanks for taking the question. Can you talk about your understanding of the limitations, if you see any at all, on further buy-backs or -- I’m going to say it but I know you won’t comment -- other strategic alternatives due to tax considerations from the spin? I guess once you get through this current buy-back, are there any handcuffs anymore via your tax consultants?

Scott Ford

Tom, I can appreciate the question and I can appreciate your desire to probe on that, but as to the strategic review process we outlined on last quarter’s earnings call, we will not provide any update or comments on that process today, except to say that if and when a conclusion is reached, we will notify the public at the appropriate time.

Tom Seitz - Lehman Brothers

Okay. Thank you very much.

Operator

Your next question comes from the line of David Janazzo of Merrill Lynch.

David Janazzo - Merrill Lynch

Good morning. Your discipline is excellent thus far, Scott.

Scott Ford

They told me you’d try me.

David Janazzo - Merrill Lynch

Well, I won’t. I’m sure others will. You mentioned in your press release you are continuing to win new customers, and obviously we see that in the numbers. What are some of the factors there in terms of your competitors and what you are doing that continue to drive that?

Kevin Beebe

First and foremost, I think it is My Circle. It is just an innovative approach. In fact, we’ve seen of late some larger companies do some things that suggest it’s -- I think it has probably had a competitive impact. It has resonated both with new customers and with our existing customers. I think it is a big part of the churn improvement that we have seen, we saw in the first quarter and actually in the last five quarters we saw since launching My Circle. That is first and foremost.

I think also we have gone -- we have made great strides in just simplifying our offer in the equivalent of marketplace, but beyond My Circle, just simplifying the data services bundled with voice services. We have done a nice job of bundling a data package with voice services. That makes it simpler for our representatives, whether they are face-to-face or on the phone, to talk to customers about the options that we have. We have seen that resonate quite frankly in our data numbers this quarter and certainly plan for that to continue.

There is not any one thing, I don’t believe. I believe our network coverage is second to none in our markets, especially in some of those second and third tier markets where maybe some of our competitors have struggled a bit of late and we have taken advantage of that, not with any special promotions or pricing -- just with good network, good solid network coverage.

David Janazzo - Merrill Lynch

Thank you.

Operator

Your next question comes from the line of Mike Rollins of Citigroup.

Mike Rollins - Citigroup

Good morning. Two questions for you, first on the roaming side. Is there anything that you are working through in terms of re-reading where, I guess on a pro forma basis, you will take this flattish, maybe modestly growing roaming business and that might actually change, either get significantly more positive or could decline more over the next 12 to 24 months -- I’m wondering if there is any sort of headwind you are getting on a re-rating side, or there is some acceleration of data traffic that you are looking for.

Secondly, with respect to the competitive environment that is out there, how do you perceive some of these unlimited local plans on the impact of your business? I know that you have also tested those in the past and had a product, but I would be curious for your latest thoughts on that segment. Thanks.

Scott Ford

This pattern is starting to be repetitive. I am going to answer the first one and Kevin is going to answer the second one. As to the first one and the roaming issues that you raised, a great question. Understand, as you can appreciate, anything that we say about roaming, what we are thinking about doing with roaming in the future, who we are roaming with, at what rate, who we are not roaming with, could very quickly end you back up in a conversation that pertains to the strategic review process which, as we’ve said, we will not be providing any update or comments on that process today.

The questions on the unlimited local plan, Kevin.

Kevin Beebe

Tom, we don’t -- there are not many markets where we see Lee or Metro, and I know Sprint is launching a plan in a few markets. I don’t believe that is in any of ours. I think Texas and California are the two states I have seen, at least publicly, where they have launched it. As you noted, a few years ago we had similar offerings in the marketplace.

Our experience suggested that the segment of the market that those plans are most attractive to are real different than where at least our current growth is coming from. In the markets where we do see competition from those service providers, if you looked at the market-by-market stats on market share gain, you’d see really no difference. There is nothing that would indicate there is a competitive difference in that market that is slowing our growth, as an example.

I think it is probably having more of an impact on prepaid service offerings where they offer it. As you know, historically we have not led with our prepaid service. I think some large carriers are getting more growth these days from prepaid than from post-paid, based on the numbers I have seen and it might be more impactful on them.

But so far, not much of an impact. We are watching it very closely. Certainly with Metro now a public company along with Lee, we will continue to monitor that closely.

Scott Ford

That really does seem to be a major metro -- for the most part, it seems to be a top tier major metro phenomenon. You cannot live in a second and third tier market without having to travel out of it, so you can live in Miami and never leave Miami. Everything you need is there. You can’t live in a middle-sized city in Nebraska or Arkansas or Michigan and not have to travel for basic hospital and shopping and things of that nature. So we are watching it.

Mike Rollins - Citigroup

Thank you.

Operator

Your next question comes from the line of David Barden of Banc of America.

David Barden - Banc of America

Good morning, guys. Thanks. A couple of questions; first, obviously I know the 700 megahertz auction participation and such is relevant to your balance sheet stuff, but could you give us your views of what the FCC put out on the auctions, and maybe as you guys see it, what would be the best case outcome from a band plan perspective, so we get a sense of what you are looking to, what would be best suited for your interests, were you interested?

The second question would be just on some of the cost of CapEx. Any particular new initiatives or anything going on? I guess margins really seem to be where you beat me, at least, in the quarter on the EBITDA line, because revenues seem to be in the right zone.

On CapEx too, obviously the first quarter last year was quite low and stepped up over the course of the year. This year again quite low, relative to the full year picture, I’m wondering if you are still on track for a step-up in the coming quarters. Thanks.

Scott Ford

I think in terms of the 700, we read that which was put out last night. We have talked to people that are following that closely on the 700. How that plays out, what our druthers are, where we are on public record with a position, we’ll let the public record speak for itself and speculating further, I think we are going to stay out of it at this point in time.

All that ever does is get us in trouble with somebody, so we are just going to pass on that.

Sharilyn Gasaway

I’ll take the second question. If you will recall during the fourth quarter, we had a pretty significant amount of CapEx that came in the fourth quarter, so during 1Q we really worked to start to close a lot of those jobs. I think it is really timing when you think about our CapEx plan.

Really, I think the other thing that we talked about from a DO standpoint is we covered about 48% of our cell sites by the end of ’06 and we are working towards covering about 65% of those by the end of the year, so that is probably the main unusual item for this year.

David Barden - Banc of America

On the CapEx side?

Sharilyn Gasaway

Yes.

David Barden - Banc of America

Just on the cost side, anything particularly new or different? Any new headcount initiatives or anything on that front?

Sharilyn Gasaway

No, I mean the thing that I think you continued to see in 1Q is kind of what we started in the back half of ’06 and we talked about it a little bit on the year-end call, relating to our initiatives around bad debt. We continued to see improvement there and will continue those initiatives.

Operator

Your next question comes from the line of Jason Armstrong of Goldman Sachs.

Jason Armstrong - Goldman Sachs

Thanks. Good morning. I just have a couple of questions. First, on ETC, another good step up this quarter. Given the potential cash being kicked around, what is your outlook for further increases there?

Second, on My Circle, you have a year under your belts at this point. What is the profile of the average My Circle subscriber versus the average subscriber in the base? Thanks.

Kevin Beebe

On ETC, we are certainly watching the dialog, let’s say, or at least -- maybe it’s more like banter in D.C. -- the joint board, FCC, et cetera, proposals by the industry, proposals by the two largest telcos in the business, not necessarily pro-wireless companies.

Our view is this: we have a great track record of developing relationships at the state regulatory level where we do get support. In exchange for that support, we have spent capital that is very targeted in rural areas and we believe have brought expanded rural networks to parts of America where quite frankly we would not have had we not had those relationships.

I would hope that if anything is done at the federal level at all, they don’t lose site of that. But oftentimes, and it is probably a commentary I shouldn’t make, but oftentimes I think that is lost in Washington, D.C.

We are pleased and our team has done a great job. We have great relationships with state regulators. We are going to watch it real closely. We feel real good about our track record of spending dollars in exchange for the subsidies that we receive and we have been very vocal about that at all levels, from a regulatory and a legislative perspective, and we will keep on pushing that.

We think there are many agendas, as always, working in Washington, D.C., and not all of them interested in providing the best wireless service to rural parts of the United States, quite frankly. Enough on that one.

My Circle, in general the profile is a higher revenue customer because you have to have at least a $59 rate plan and above. Our customers have migrated up as much as they have migrated down to My Circle. It is typically a customer that also has family plan lines because there is real value there, and their usage in terms of overall minutes, whether it is packaged or -- total minutes, I should say, whether it is package or post-paid, is a bit higher, but we have been pretty elusive about the competitive details of the service for obvious reasons. We are very pleased with how it is turning out and our marketing teams and our sales teams have done a great job of representing in the marketplace. It also has really simplified the customer service angle. That’s not the right thing to say. It has also simplified customer service because it is a real straightforward and simple thing.

Jason Armstrong - Goldman Sachs

Maybe I can sneak one more in, hopefully you’ll answer it; can you walk us through the timing and the logic for the changes that were in the recent proxy, related to payments to the management team and a change of control scenario?

Scott Ford

I think there is nothing new that’s in there other than the fact that it is disclosed in a different format. That stuff goes back -- the essence of all those agreements go back multiple years.

Operator

Your next question comes from the line of Phil Cusick with Bear Stearns.

Phil Cusick - Bear Stearns

Thanks for the question. I wonder if you can help me out and follow-up on that last one a little bit. One, we have seen data really exploding. Can you talk about the drivers of that over the last year? Is it just across the board or are you starting to bring in BlackBerries, or increasingly BlackBerries and laptop cards?

Two, we have seen voice ARPU come off. I am calculating the local voice ARPU pretty steadily over the last year, a little bit of prepaid dilution there but can you help us out by thinking about voice ARPU between prepaid and post-paid? Is that really coming down on the post-paid side or is it just dilution? Thanks.

Kevin Beebe

On data, we’ve certainly sold -- we’ve added more BlackBerries and data cards into our customer base and network. Not explosive growth, though. Most of our data growth has come from better bundling of services, like I had mentioned previously, voice and text bundling, data bundles themselves -- just simplifying the offer. And then quite honestly, our customers are using the services more, which I think is a result of the fact that the handsets we have put in the marketplace are making it easier for them to use.

Too early yet on Celltop. I mentioned a bit earlier that the results right now are very good in terms of average data usage from customers that have Celltop on their handsets. But right now it is just better handsets, better screens, better navigation capabilities, better network -- all of those things coming together I think drive growth as oppose to just explosive growth in the business channel, although we are doing a nice job of adding BlackBerry and cards.

On voice ARPU, we’ve been saying consistently that is going to come down and the trend in 1Q is no different than the trend we saw previously, as more minutes get added to package. My Circle certainly is driving that. What we are trying to do is balance the air time declines with an increase in recurring revenue by driving the decision to be you have to at least get a $59 rate plan and above. But what we have been pleased with so far is that our data growth has outpaced -- our data and ETC growth has outpaced the declines in voice revenue. I think the continuation of that is something that is fully reflected in the guidance we gave earlier this year.

Phil Cusick - Bear Stearns

Can you give us any sort of prepaid ARPU breakout? That would help.

Kevin Beebe

Prepaid ARPU, we don’t break that out but what I can tell you is since the launch of our new wireless service about a year ago -- it was really January of ’06 -- we have seen some nice increases in prepaid ARPU. To be real up-front with you, it is really post-paid voice ARPU that has been coming down.

Operator

Your next question comes from the line of Simon Flannery of Morgan Stanley.

Simon Flannery - Morgan Stanley

Good morning, thanks. I wanted to follow up on the strong wireless add numbers. You have talked about some of the drivers -- My Circle and so forth. To what extent do you think that your markets still have a lot more headroom for penetration versus some of the larger metro areas? If you look at national penetration, you are in the high 70s now. Do you have comparable numbers for your markets, saying that you might have one, two more years of growth behind what the big four might have? Thanks.

Kevin Beebe

I do think the second and third tier, fourth tier markets -- we now have a fourth tier invented, by the way -- fourth tier markets do have lower overall penetration. I think it is a combination of that and while the average number of competitors, when you just look at the numbers, the average number of competitors don’t differ materially from one to three tire, from the first tier -- the first tier being very large markets, the third tier being smaller markets. The average number of competitors don’t differ when you look at the raw numbers.

What does differ is I think our network. I think we have done a much better job of focusing on those rural markets, back to my comments on ETC. It is not exclusively because of ETC subsidies that we have built out those networks. We’ve had better networks I think historically but we sure use that to deliver a better service to customers, and I believe you see that reflected in the second and third tier markets. It is certainly there where we are having the best gain in terms of market share.

There is also one other thing I mentioned and that is just the value of 850 spectrum as opposed to 1.9. It is more expensive to build 1.9 out, or any higher frequency spectrum, in rural markets than it is at 850.

Simon Flannery - Morgan Stanley

But you do still see some pretty healthy potential for overall penetration in your markets?

Kevin Beebe

Yes, we feel good about the growth prospects for the future. As long as we can keep that competitive mix going, and as you know, you’ve been with us for a long time and that balance between getting customer growth and profitability has been important to us. Right now, as you can see, right now we think the competitive mix in the marketplace lends itself to let’s go grow some customers.

Operator

Your next question comes from the line of Chris Larsen of Credit Suisse.

Chris Larsen - Credit Suisse

Thanks and good morning. A couple of questions on roaming. In the third quarter last year, you saw Verizon creep their over build out a little bit. I was wondering if you could give us an update on that.

I know you do not want to talk about plans for your footprint expansion, but if you could tell us where your GSM footprint sits today as a percent of your total coverage footprint.

And then, could you remind me when you anniversary some of your major contractual step downs in roaming rates, so when the actual volumes begin to -- I think to go back to Mike Rollins’ question, when those volume accelerations begin to translate into top line accelerations? Thanks.

Kevin Beebe

On Verizon, no change there from what we have seen, what we saw in the first quarter. We saw some growth in roaming revenue, as I mentioned earlier on the top line as minutes and data usage have offset some of the contracts of voice -- there is no contracted price declines remaining this year in ’07. There are some in future years but nothing this year.

Chris Larsen - Credit Suisse

Right, but the bulk of that came through in the third quarter of last year. I just wanted to -- so by the third quarter of this year, you will actually, assuming the strategic things don’t happen before then, you should theoretically see an acceleration of revenues relative to minutes?

Kevin Beebe

The year-over-year comparisons will get better in the time frame that you are talking about, absolutely.

Scott Ford

What the banner here is on that specific contract. Then, there is a mix of other contracts that have other features and then you have to blur that through, including the question of where is GSM. GSM is still mostly in the western markets and there is whatever discussions about what we are going to do on the other front, we will pass on.

John Ebner

Operator, we have time for one more question.

Operator

Your final question comes from the line of Jonathan Atkin of RBC Capital Markets.

Jonathan Atkin - RBC Capital Markets

Good morning. My questions are on data. I wonder if you can just refresh us where things stand with respect to 1XRTT and EVDO roaming.

Then, with regard to Celltop, do you have -- can you talk about what sort of intellectual property protection you have around that type of widget interface on the phone? Have you seen, based on usage so far, mainly business and news source of applications, or more kind of exploratory handset applications?

Kevin Beebe

On data roaming, we have 1X agreements with two carriers, and a DO agreement with one carrier. We are continuing to build out our DO network. We will add to it this year more markets as well. So plans to expand the network and we have a roaming agreement in place that is functioning now. Our customers can in fact roam on our DO roaming partners, which is Sprint.

On Celltop, we have a patent pending on the technology that we filed, waiting to hear. It is going through normal processes. I don’t believe there has been any objection to our patent filing. I have not heard of any. We really developed that technology from the ground up with a number of technology providers.

You had a question on usage, what is driving the -- what are the applications behind the increased usage with Celltop. It is really -- what it does is, I’m not sure if you’ve seen it but it just makes downloading all applications a lot easier. Music, number one. Number two would be access to information, whether that is weather or sports or business, stocks, financial information. Number three would be additional sites that give the customer access to their favorite mostly sport venue, scores and headlines, et cetera, are the things we are seeing customers download much more. But music downloads are really just far and beyond some of the best revenue generators.

Jonathan Atkin - RBC Capital Markets

Thank you very much.

Scott Ford

We appreciate everybody’s patience with us today and we appreciate your interest. We would like to thank you for joining us on the call. If you have additional questions, you can feel free to contact our investor relations department at 501-905-8991. Tim Hicks, our Director of Investor Relations, will be available at that number later today. Thanks very much for your time. You all have a great day.

Operator

This concludes today’s conference call. You may now disconnect.

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Source: Alltel Q1 2007 Earnings Call Transcript
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