Here’s the entire text of the prepared remarks from Sprint Nextel’s (ticker: S) Q3 2005 conference call. The Q&A is here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.
Kurt Fawkes, Investor Relations
Gary Forsee, Chairman of the Board, CEO
Paul Saleh, Chief Financial Officer
Len Lauer, President, COO
Dan Hesse, CEO Local Telecommunications Division
Tim Kelly, Pres. Consumer Solutions Business
Jason Armstrong, Goldman Sachs
Steven Glick, Credit Suisse First Boston
Michael Rollins, Smith Barney Citigroup
Christopher Larsen, Prudential Equity Group, LLC
Tom Lee, J.P.Morgan
Colette Fleming, UBS Warburg
David Janazzo, Merrill Lynch
David Barden, Banc of America Securities
Tim Horan, CIBC World Markets
Good morning may I have your attention. I'd like to thank everyone for holding and welcome you to this morning's Sprint Earnings Conference with our moderator Kurt Fawkes. I need to remind everyone that today's conference is being recorded for play back purposes and we will take questions at the end of the conference. Sir, at this time I'll turn the conference over to you and thank for calling the conference center.
Kurt Fawkes, Investor Relations
All right, thank you Tim. Good morning everyone and thanks for joining us on our inaugural earnings call for Sprint Nextel. The format of the call today, our President, CEO, Gary Foresee is going to kick off the discussion and then Paul Saleh our CFO will review our corporate performance including key balance sheet items and cash flows. Following Paul's remarks, our COO, Len Lauer will update you on the integration process and discuss the wireless and long distance businesses. Dan Hesse, the President of our Local Phone Division is going to close out our prepared remarks with a discussion of local business unit performance and an update on our local spin. We're going to finish the call with Q & A. And for our Q & A, Tim Kelly, the President of our Consumer Business will be joining us, Mike Fuller the COO of Local, and Mark Angelino, President of our Business Group.
Now I want to turn to Slide 2 and point out in our remarks this morning, we will be discussing forward-looking information which involves a number of risks and uncertainties that may cause our 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. Throughout our call this morning, we will be referring to several non-GAAP metrics, Slide 3 contains reconciliation’s of our non-GAAP performance and liquidity measures to the appropriate GAAP measures for the third quarter.
Our earnings release also includes many of these reconciliations and can be found on our website. Second quarter reconciliations of Long Distance and Local non-GAAP financial measures are available in our second quarter earnings release. On Slide 4 we provide reconciliation between GAAP earnings per share and adjusted earnings per share. Our third quarter GAAP results reflect the August 12th merger of Nextel and the August 12th acquisition of U.S. Unwired. For the quarter, we reported GAAP earnings per share of $0.23, and our adjusted earnings per share was $0.29. The major reconciling items include after tax charges of $51 million for hurricane-related items, $153 million in after-tax for after tax charges for merger and integration costs. $25 million for an asset impairment, and these were offset by an after tax investment gain of $90 million.
On Slide 5, we show the reconciliations between reported and adjusted earnings for our proforma results for the third quarter and proforma will be the main focus of our discussions this morning. Our proforma results assume the Sprint Nextel merger occurred at the beginning of each of the quarters presented. For our proforma results, we have continued to reflect U.S. Unwired as of its acquisition date because it did not have a material impact on prior periods. And to give you a flavor, U.S. Unwired added $32 million of revenue and $15 million of operating losses to our consolidated results in the third quarter.
Again, on a proforma basis, we adjust earnings for merger and integration costs, the hurricane-related items, and the asset impairment offset by the one-time gain. Our proforma results include customer based quarterly amortization expense of $815 million. This item was partially offset by lower depreciation expense following the adjustment of the Nextel property, plant and equipment balance. I would also point out that our proforma results reflect an approximate incremental cost of $90 million per quarter that arises from expensing stock options on the Nextel side. This item diluted our proforma Wireless EBITDA margin by approximately 120 basis points in the third quarter.
Finally, beginning this quarter, Sprint Nextel will report our Local and North Supply business units as a single segment, reflecting the fact that North Operations will be included in the Local business when it is spun off. In our release, we have provided historical results reflecting this combination, and we have also continued to provide reporting on the Local business on a stand-alone basis. And Dan's comments this morning will be focused primarily on stand-alone Local results. Now I'm pleased to turn it over to Gary Forsee. Gary.
Gary Forsee, Chairman of the Board, CEO
Thank you, Kurt and good morning everybody. I want to add my thanks to you for participating in our call this morning. I know that you're in the midst of a very busy week and I hope you'll find that you made a good investment of your time being with us today. This call is another important milestone for Sprint Nextel and it adds to a growing list of achievements since we announced our merger last December. I won't go through the list with you now but suffice to say, we have clearly covered a lot of ground in a very short period of time. And from my experience, we are significantly ahead of schedule on all merger initiatives and the results that we are producing.
While I'm pleased with our achievements to date, less than a hundred days since we closed our merger, I recognize it's only the top of the first inning, and there's considerable work ahead of us. Today's initial results, however demonstrate the winning potential that we hold for our employees, and customers, and for our owners. For our employees, Sprint Nextel provides a great place to work. The breadth and depth of our operations in telecom is unmatched and our employees recognize that this also means a wide range of opportunities to build outstanding careers. Since the merger, our internal employee server data shows a growing level of job satisfaction and I expect that momentum will continue to build as we make progress on multiple fronts in the coming months. For customers, Sprint Nextel provides the opportunity to do business with a Company that has an unmatched portfolio of services and mix of assets to support their needs. From individual consumer, to the small business owner, to global enterprise, uses of our service will see us deliver the promise of yes, you can. Sprint Nextel opened up for business with a rock solid balance sheet and strong investment grade credit rating. We delivered annualized proforma revenues of nearly $45 billion in the quarter, that grew at a 8% level versus last year. Our proforma adjusted OIBDA for the quarter of $3.7 billion grew at 10% and adjusted earnings per share prior to purchase accounting effects is up 32% on a year-over-year basis.
So far investors, Sprint Nextel provides the opportunity to own a company with a strong financial foundation and superior growth profile. It allows investors to own a piece of a wireless business that now serves more than 45 million subscribers and is producing rapid top line and bottom line growth. And investment in Sprint Nextel also allows investors to own interest in a global long distance backbone that serves nearly all the Fortune 1000, delivers far superior top line performance relative to it's peers, and is producing substantial free cash flow. It also provides the opportunity to get in on the ground floor of a soon to be independent local telephone business that consistently has delivered solid financial results and strong cash production.
Finally, the owners in our Company will have the opportunity to share the rewards afforded by the substantial synergies we will produce as a result of the merger. Last month we announced 20% increase to our synergy target to 14.5 billion on net present value basis. You will recall this target after we twice raised our collective plan capital spending on our networks by a total of nearly $4 billion over the next three years. There are a number of initiatives already under way that will help us achieve these synergies and we feel very comfortable with this revised target.
These synergies span every category of the P&L from revenues to real estate costs, and touch just about every function in the business. And we're off to a fast start, I might add. For example, by consolidating executive teams, we have reduced 25% of the Senior Management positions that existed in our two stand alone Companies. Our new brand was launched and is rapidly gaining traction in the marketplace. The merger of our sales teams has provided a seamless transition for our enterprise customers. And these are just a few examples to provide a flavor of the type of Company that we are becoming. Of course it will take a consistent sharp focus on execution and attention to detail to fully realize these opportunities. I believe the track record of this management team along with our early results as a combined Company should give you comfort that we will do just that, continuing our track record of doing what we say we will do and delivering those results.
We do have some unfinished business to attend to, and that is defining our future relationship with the Sprint PCS affiliates and Nextel partners. As you know, we made progress in this area with the acquisition of U.S. Unwired, Gulf Coast Wireless and IWO already completed. We continue to hold discussions with the remaining affiliates on various alternatives but have not crossed the finish line on additional transactions. With respect to Nextel partners Monday showing a vote to put the Company to Sprint Nextel has set us on a very well defined path. The next step this that process is for Sprint Nextel to select it's appraiser over the next 18 days and we will certainly keep you informed of our progress on these fronts. I do want to tip my hat to our people who continue to work tirelessly to ensure we provide customers with the most innovative services and the best customer service experience possible. The level of effort has been extraordinary, particularly when you add in the likes of Katrina, Rita, Wilma, and the level of effort that is underway as we plan the spin of our Local Company. So thank you to our Sprint Nextel associates.
Finally, I want to close my remarks with a commitment to you that as a new Company, we will continue the legacy that both of our companies built over the years and being very transparent with you in our communications. I hope you find the extensive proforma information we're providing this morning is helpful in assessing our prospects and you should take our detailed reporting this quarter as a good indication of the aspirations we hold in this area. Now I'll turn the call over to Paul.
Paul Saleh, Chief Financial Officer
Thank you, Gary and good morning everyone. I'm pleased to be with you today to share our prospective on our initial results as a combined Company. I want to begin by echoing Gary's comment on the strong performance of Sprint Nextel. In the quarter, we reported strong revenues, earnings and cash flows in each of our segments. Our execution to date has been note worthy in the face of closing our merger, launching our new brand and I integrating our businesses. It reflects the ability of our management team to meld together and hit the ground running.
Turning to the proforma financial information on Slide 9, third quarter net operating revenues were $11.2 billion, an increase of 8% year-over-year and 2% sequentially. Consolidated adjusted operating income was $1.3 billion, up 46% compared with the third quarter of last year. The year-over-year increase was due to an increasing contribution from Wireless, stronger result at Local and lower depreciation in our Long Distance business. Sequentially, adjusted operating income was essentially flat. Consolidated adjusted or OIBDA for this quarter was $3.7 billion, 10% higher than one year ago, and up slightly on a sequential basis. Proforma adjusted EPS was $0.25 per share in the third quarter or 56% greater than the prior year and 9% greater on a sequential basis.
On the purchase price accounting, we recorded an asset on our balance sheet of approximately $10 billion, associated with the value of our iDEN customer base. This asset is being amortized over five years and represents incremental quarterly amortization expense and purchase accounting effects of $0.16 per share on an after-tax basis. Excluding these items, EPS would have been $0.41. Total proforma capital investments during the third quarter were $1.5 billion with nearly 80% going to our Wireless operations. Year-to-date proforma capital investments were $4.9 billion both of these figures exclude rebanding costs.
On Slide 10, I'll summarize our business mix. As you can see from the slide, Sprint Nextel is well represented in the growth areas of the telecom. In the third quarter, over 70% of Sprint Nextel's revenues and profits were derived from the Wireless segment. Excluding Local, Wireless would have contributed 83% of the Company's revenues and 90% of its adjusted OIBDA.
Now we'll turn to Slide 11 for a discussion of our financial position. Our total asset at the end of the quarter were $101 billion, and shareholders equity was $52 billion. Cash and marketable securities total $8.9 billion and growth debt at the end of the third quarter was $25.3 billion. Our strong cash position gives us the flexibility to ultimately resolve the Nextel Partners process as determined by the appraisers. We are also prepared to address potential outcomes from our ongoing discussions with the Sprint PCS affiliates. In the interim, we do not expect to use cash to reduce our debt balances. By doing this, we are preserving our flexibility to apply the proceeds of the debt issuance associated with the Local spinoff in a tax-effective manner.
Overall, we expect to maintain a strong financial position consistent with an investment grade rating. And anticipate that the Company will continue to generate solid free cash flow from operations. We will soon have the opportunity to consider distributing excess cash to shareholders in the form of share buy backs and dividends. However, at this time, we are limited in our ability to plan such distributions by certain restrictions under the tax code that apply to our expected Local spinoff. Accordingly, we will not jeopardize the tax-free nature of the spin and we will review our cash distribution policy with our Board at the appropriate time in the near future.
I'd like to turn to Slide 12 now to briefly review our merger-related synergies. As we shared with you recently, we expect to deliver $14.5 billion of merger synergies, which include $1.6 billion from revenue opportunities, $3.7 billion from reduced capital spending, and $10.2 billion from lower operating expenses. We also expect to spend $1.5 billion on integration costs. Year-to-date, we've incurred $608 million in merger and integration costs with the majority flowing through the income statement and a fortune recorded as part of purchase accounting related to the merger. As we have previously stated, we're confident in our ability to achieve our targeted synergies. We're off to a good start. We have a robust program in place to track our progress and ensure that these synergies are realized. These synergies will enable Sprint Nextel to achieve an adjusted OIBDA service margin, excluding the local phone business of 40% or more by 2008 or earlier.
Slide 13 covers our new guidance for the full year. On a proforma basis we expect full year consolidated revenues to be approximately $44 billion or 8% higher than in 2004. Wireless is expected to generate full year revenues of approximately $32 billion, an increase of 12% to 13% year-over-year. In the fourth quarter, we expect approximately $1.4 million total direct net ads with strong sequential growth in both direct PostPaid and prepaid net ads. Full year, Long Distance revenues are expected to be approximately $6.9 billion or about 6% lower than in the prior year. Local revenues are expected to be around $6.5 billion for the full year or slightly ahead of full-year 2004. We expect full year consolidated adjusted OIBDA to be up 9% to approximately $14 billion. We expect full year capital spending to be around $6.4 billion, excluding rebanding costs. Wireless capital is expected to be $5 billion before rebanding while Long Distance is targeted at $350 million, and Local is expected to be between $850 million and $900 million.
Lastly, I'll update you on our tax position. Sprint Nextel's book tax rate should be approximately 38% on a go-forward basis. However, given our NOL position, our cash tax rate is expected to be around 10% to 15% on a pre-tax book income through 2006. Now I'll turn the call over to Len.
Len Lauer, President, COO
Thanks, Paul. And good morning everyone. I'm pleased to be with you this morning to report on our progress. I know there's been a lot of speculation about just how well we are doing so I hope our remarks today will be helpful in answering your questions. After the close of our merger on August 12th, we immediately began to execute on the detailed plans that had been drawn up for combining the two Companies. We've listed some of our major activities on Slide 15 and I want to begin my remarks this morning with a few comments on these. In area staffing, Sprint Nextel has named over 90% of the managers of the new Company and in many organizations we are complete to the individual contributor level. We expect the naming of the remainder of the organization will be largely completed in the fourth quarter.
On distribution, at the beginning September, we initiated our market launch, 100% of our Company's retail stores and kiosks were stocked with new promotional materials and 90% were selling both CDMA and iDEN products. We expect to have completed exterior signage change out in the majority of our stores by year-end and in all of our stores in the February time frame. In the indirect sales channel, we have equipped more than 60% of the agents with both CDMA and iDEN equipment and sales materials. All together, we have more than 30,000 points of distribution selling both product lines and our sales teams have completed over one million man-hours of sales and customer care training. Sprint Nextel has already completed four important sourcing projects in the area of the supply chain, including the selection of our vendor for 411 directory services, which will generate savings of $65 million or more on an NPV basis which is greater than our expectations. Overall, we have launched 60 sourcing initiatives, which are designed to leverage our scale and deliver substantial operating and capital synergies.
One example of these initiatives is our billing platform. In the past two months, we have issued the RFT and began the evaluation of the supplier responses for integrated customer care and billing platform. In Customer Service, our careful planning and customer communications has resulted in incremental call volumes being less than anticipation. In the short term, we continue to have separate care operations for CDMA and iDEN customers but w have implemented a smart call routing capability which gets our customers to the appropriate service reps. First-call resolution statistics are meeting or exceeding pre-merger levels. We have more work to do to increase overall Customer Service levels but we're off to a good start.
In our new branding campaign, we're excited about the merits of our exciting new brand which we've been advertising which features more communication choices and flexibility for enterprise and government customers, as well as our consumers. Our differentiated campaign emphasizes action, capability, and the experience of our new Company. On week four of our ad campaign, Sprint Nextel reported a 36% brand recall for advertising versus 31% for our nearest national wireless competitor. Initial data also indicates we achieved a modest gain in our share of wireless decisions during the month of September.
Now let me turn to our operating performance, and on Slide 16, I want to get into our proforma quarterly performance. Amidst all the integration activities, our Wireless business added approximately 1.3 million new subscribers in the quarter and our total subscriber base increased by 19% versus last year to 45.6 million. During the third quarter, Sprint Nextel added a little over 1.1 million Post Pay Direct subscribers, including the acquisition of 454,000 PostPaid subscribers from U.S. Unwired. We also added 68,000 Prepaid subscribers with this acquisition. In our Direct Prepaid business, Boost Mobile delivered a terrific quarter with 300,000 net subscriber additions. The favorable Boost subscriber trends are being aided by the strong appeal of the Boost Lifestyle brand, improved handset selection, enhanced distribution, and more competitive pricing for internet interconnect services.
PostPaid Direct gross additions were $2.9 million for the quarter, virtually the same as the second quarter and 4% lower when compared to one year ago. Gross Ad productivity for the quarter increased slightly in our business channels, and decreased in our consumer channels, largely due to limited advertising in July and August as we kept our powder dry for the new brand launch on September 1st. We did infact experience improving consumer sales trends during September, and this momentum has continued in October.
In the quarter, total Wireless revenues grew 12% compared to the year ago period due to a larger base. In the quarter, service revenues were up 11%, equipment revenues of $817 million were up 8%. And wholesale affiliate revenues of $227 million were up 37% versus one year ago. In the quarter, we delivered a 14% improvement in adjusted OIBDA, and a 45% increase in adjusted operating income. The adjusted Wireless OIBDA margin in the quarter was 36.6% of service and wholesale and affiliate revenues. This margin was 35.7% a year ago and 37% in the second quarter of this year. During the quarter, the cost of services and products increased 15% year-over-year and 6% sequentially to nearly $3 billion. These increases were driven by increasing network costs from restoring service to the hurricane damaged areas, from the elimination of tower collocation credits following the second quarter modernization of our tower assets, from the general expansion of the network and also from incremental back call costs for EVDO sites. In addition, the cost associated with our Service and Repair business increased in the quarter and we had higher costs associated with our Handset Upgrade Program, which will help loyalty for our customer base.
Selling, General and Administrative expenses were 31% of revenues during the third quarter. This ratio was on par with the second quarter and was down slightly from one year ago. In the quarter, bad debt expense was 2.1% of revenues versus 1.2% in the second quarter. This increase is due to a higher consumer mix on the iDEN platform. We currently expect bad debt expense to be around a similar level in the fourth quarter. The increase in bad debt expense was offset by lower IT and customer care costs.
Now I'd like to turn to Slide 17 to drill into some of our key metrics for the quarter. Turn on the Direct PostPaid base was 2.1% an improvement over the 2.2% from one year ago, but an increase in the second quarter turn rate of 1.9%. In the quarter, involuntary turn rose while voluntary turn declined versus the second quarter. The CDMA subscriber base reported record low voluntary turn, in part due to the strong adoption of our Fair and Flexible Service Plan. Increases in involuntary turn, however, rose for iDEN customers due to the growth of our iDEN consumer base. The turn rate for Boost Prepaid this quarter was 4.9%, a solid sequential improvement.
Third quarter Wireless ARPU for PostPaid customers was $65. Sequentially lower by $1, with about $0.34 of this decline resulting from higher customer credits as a result of hurricane Katrina. We also saw lower overage charges sequentially. On the year-over-year basis, proforma ARPU was $2 lower, mainly due to lower overage charges, the increased customer hurricane credits, and modestly lower monthly access fee, which were offset by increased contributions from Data Services. In the quarter, the average PostPaid usage was slightly over 16 hours per month, which was consistent with the second quarter, and up just under 10% from the year ago period. Our Boost Prepaid Service continues to deliver strong ARPU of $37 per subscriber. This compares to the second quarter of ARPU of $38 and is mainly due to a lower contribution from interconnect services. For Direct PostPaid subscribers, Data ARPU was approximately $5.25 per subscriber or 40% higher than one year ago. We continue to experience strong customer demand for PCS Vision, Blackberries and our industry data solutions and we had solid sequential gains in Data ARPU on both the CDMA and iDEN platforms. Since the third first quarter of 2005, we have been selling EVDO connection cards to business accounts and I'm pleased to report that sales and service levels are trending up nicely.
Our capital investments continue to be focused on increasing capacity in signal density, expanding coverage, and deploying 3G Data Services. On Slide 18 you will see the third quarter proforma capital spending was $1.3 billion, which includes rebanding expenses. In the quarter, our networks managed 107 billion minutes of use, up 2% sequentially and 22% versus one year ago. We added a thousand new sites during the quarter, bringing our total wireless sites in use to 47,000. During the quarter, approximately $89 million in capital was spent on our rebanding activities, bringing the year-to-date total to $282 million. We anticipate that these expenditures will be applied against our rebanding obligations. These expenditures include new iDEN equipment and site modifications, which will be needed when certain 800 megahertz channels are returned to the SEC in 2006. A small portion of rebanding spend is for new equipment necessary to relocate broadcast auxiliary licenses from 1.9 gigahertz to 2.1 gigahertz.
Now let me turn to Slide 19 to give you a sneak peek of our product plans. Suffice it to say that our third quarter was devoted to careful integration of our Companies to deliver in preparations for a high growth, highly profitable communications and entertainment business. With the new brand taking root, an increasingly experienced sales staff and exciting new products and services including, a very broad selection of EV-DO handsets with multimedia capabilities which we'll be bringing to our stores very soon.
Expect an announcement very soon regarding Sprint's music store, which will feature a strong array of content and choice for downloading, listening to, and managing songs while on the go. Impressive new iDEN handsets, such as the i930 Windows Smartphone, and the 7100i, a Blackberry device in a thinner form factor, and innovative new services, such as our exclusive NFL content, GPS assisted location services, Sirius Satellite Radio Channels and a number of new services designed to take advantage of the speed of our high speed EVDO network delivering exceptional visual clarity and sound quality. And also a hosted Blackberry solution for small businesses. We are on track with our previously announced EVDO deployment plans and you should expect to hear more about our exciting new services in the near future. As a reminder, by year-end, Sprint Nextel plans to offer high-speed wireless data services to 130 million people. Increasing to over 150 million people by early 2006.
Let me now move to our Long Distance results, our third quarter performance for Long distance business, you will see on Slide 20. I'm pleased to report that we had another quarter of improving top line performance. This trend is being driven by demand for our differentiated MPLS services and our volume increases in our wholesale voice business due to growth in cable telephony and wireless backbone demand. On the MPLS side of the business, we recorded several new account wins including the Federal Aviation Administration and Northern Trust. Strength in these areas is offset by decline in our Consumer Voice and Legacy Data business. Our year-over-year revenue comparisons continue to be impacted by our exit for the Dial IP business and the Hosting business. Together, these two categories accounted for roughly 35% of the year-over-year decline in total revenues at Long Distance.
Business Voice revenue increased by 2% from the third quarter of 2004 and 3% sequentially due to strength in the wholesale and affiliate voice services. Our Cable Network Operator business continues to do well. We are on track to meet our guidance of at least a hundred million dollars in revenue in 2005. At the end of the third quarter, we surpassed 600,000 cable voice subscribers. Consumer Voice revenue was steady in the third quarter on a sequential basis but was 27% lower versus one year ago, due to reduced volume and rate declines. This is merely a continuation of recent trends as more traffic goes wireless. Consumer Long Distance Voice revenue is now less than 10% of total Long Distance revenue and 1% of the Company's consolidated revenues. This compares very favorably to our industry peers. Revenue from Data Services declined at recent historical rates down 4% for the quarter and down 6% on a year-over-year basis caused by lower frame relay broadband and ATM revenues. These declines were partially offset by higher revenues from our Managed Network Services.
The Company's Internet revenues were approximately 6% higher sequentially, and 4% higher than one year ago. The annual increase of Internet revenues are somewhat massed by the effects of exiting the Dial IP business. As customers migrate from ATM and frame relay to more efficient MPLS networks, our dedicated IP business grew 6% sequentially and 20% year-over-year. Our market advantage is in our multi-tasking capability. The ability to run Voice Data and video through the same platform and our scalable class of services offered. We are very pleased with customer demand for MPLS services in the quarter and we expect this trend to continue as customers realize substantial operating efficiencies available from this service. The Long Distance business delivered solid profitability for the third quarter. Adjusted OIBDA for the third quarter was $285 billion. This was a 8% sequential increase, but a 6% decline from the same period last year. In the quarter, the adjusted OIBDA margin was 16.4%, which compares favorably to second quarter margin of 15.3% but is slightly down from the 16.7% margin, which we reported one year ago. Lower gross margins and higher advertising expenses in the quarter were offset by savings from general cost controls and reduced bad debt expense.
Finally, we continue a selective investments in the growth area of our Long Distance business and maintain our industry leading position in our appropriate return on the capital deployed. We have increased our guidance slightly for full year LD CapEx, and this reflects growing demand for MPLS Services, Cable Voice Services, and replacing CapEx from hurricane damage. In the quarter, Long Distance capital expenditures was $83 million. Adjusted OIBDA exceeded capital expenditures by over $200 million for the quarter. On a year-to-date basis OIBDA is running approximately $590 million ahead of our capital adjustments. Now we'll turn to Slide 21 for an update on update on Local and I'm pleased to hand it off to Dan Hesse. Dan.
Dan Hesse, CEO Local Telecommunications Division
Thanks Len and good morning, everyone. To many of you in the investment community I've worked with before, and to those I haven't, I look forward to having a strong and open relationship with you going forward. I've been here for four and a half months and for two quarterly results releases, and this quarter is no exception to the string of strong quarters you have come to expect from Sprint's Local division. I have thoroughly enjoyed working with Mike Fuller and the outstanding team he's assembled to lead the new Local Company, which is what we call ourselves internally until we choose a new name. Before talking about the third quarter, I'd like to make a few comments. Even though I'm pleased with our performance, we will have to be a much more effective competitor in the future if we intend to grow. With business customers, we are now holding our own. We're with standing what Cluck and cable competition have to offer. The separation from Sprint Nextel should give us the opportunity to improve here by allowing us to focus business sales resources more intentionally on our local markets and products and apply those resources more effectively against small and SOHO businesses what some call down market. Our wholesale businesses customers continue to perform well, and we intend to be the facilities-based carrier of choice in our territories.
The consumer market's going to be more challenging. Revenue and excess line losses are accelerating as cable voice competition and wireless substitution become larger factors in the marketplace. In addition to doing a better job of retaining our current customers, we plan to be more aggressive and proactive in increasing new line orders, for example, reaching out to people moving into or within our territories and winning back customers from competition. We intend to build more direct and indirect channels to go to market with. We have a once in a lifetime opportunity to create a new name, a new image, and a new brand next year and we do not intend to squander it. We're working hard to bring new offers and capabilities to the market next year that will set us apart. This will not be simple, as in this short time frame, our team must also deliver strong results and simultaneously separate from Sprint Nextel, which, in itself, is a very resource intensive and complex endeavor.
We expect to be a fortune 350 New York Stock Exchange listed Company and our plans to launch this new Company in the second quarter are on track. By the way, I'll conclude my remarks with a more detailed discussion of our planning efforts in this regard. Our people are energized by our plans and the prospects of creating this new Local Company and I look forward to aggressively attacking our challenges with them.
I'd like to now turn to Slide 23, talk about our performance. I'm pleased to report that Local had a strong quarter with solid revenue, operating profit and cash contribution performance. Sequential revenue performance was supported by another quarter of strong growth in Data. Continued effective expense management allowed us to achieve an adjusted OIBDA margin of 50%. We also continued to prudently manage capital expenditures. In the period, our adjusted OIBDA exceeded CapEx by $533 million, an increase of 16% compared to the third quarter of 2004. In the quarter, as with the previous several quarters, we achieved solid results from our growth initiatives, including DSL and bundles. In the quarter, we added 48,000 DSL subscribers, while maintaining solid pricing levels.
Turning now to our financials on Slide 24, total local revenue of $1.5 billion was flat compared to the third quarter of 2004 and was up 1% sequentially. Voice revenue declined 2% year-over-year and was flat sequentially. This year-over-year decline is primarily due to fewer access lines and lower access minutes of use. In addition, recall the 2004 voice revenue was negatively impacted by a $14 million FCC ruling associated with an inner state price cap dispute. Data revenue increased 17% from last year and 5% sequentially. Fueled by DSL gains as well as special access sales, primarily to wireless carriers. Looking at revenue by customer segment, consumer revenue was down 1% year-over-year, but was flat sequentially. Business revenue, including wholesale was up 1% year-over-year and up 2% sequentially. Third quarter adjusted operating income of $464 million was up 5% year-over-year, driven by reduced costs, as well as the 2004 price cap issue mentioned previously. On a more apples-to-apples basis, without the price cap effect of last year or any hurricane costs in either year, operating income would have been up $6 million or 1.3% over last year. Sequentially, adjusted operating income was down 1% due to seasonally higher expenses.
Compared to the year ago to the year ago period, third quarter adjusted OIBDA increased by 4% but declined by 1% sequentially. Capital expenditures were $209 million, for the quarter, or 14% of revenues versus $257 million or 17% of revenues for the same quarter of last year. Compared to a year ago, total voice access lines and service declined by 280,000 or 3.6%. During this same time frame, DSL lines increased by 206,000 or 48%. Residential retail voice lines declined by 241,000 or 4.5% to $5.1 million, driven mainly by wireless substitution of primary lines and broadband substitution, including our own DSL of second lines. In the quarter, business retail access lines declined by 30,000 or 1.4% to 2.1 million. This compared to a 1.8% decline in the second quarter. Wholesale lines declined by 4% to 214,000. In the quarter, net switched-access minutes were down 10% year-over-year.
I'll now move to North Supply. For the quarter, revenue was $274 million, an increase of 26% year-over-year and 38% sequentially. These significant improvements were due to strong growth in nonaffiliated sales, primarily to Bell South. North Supply entered into a new agreement with them in early July and it quickly ramped in part due to the hurricanes damage in their territories. This contract and several others are expected to be strong contributors to North Supply's top line results in 2006. North Supply produced break even adjusted OIBDA compared with the modest gain in the third quarter last year and modest loss last quarter.
Turning to Slide 25, I'd like to address the competitive environment that we're operating in. Overall, we continue to see our primary competition coming from Wireless. However, cable telephony competition is increasing. For this discussion I'll focus on cable. We estimate that cable broadband services are available to about 80% of our existing primary line customers. We estimate that cable telephony services are now available to about 30% of our existing primary line customers and our estimate is this could grow to about 40% by the end of the year. Last quarter we said we believed we lost a total of 50,000 primary access lines to cable, since early 2004. We believe this aggregate number now stands at approximately 70,000.
Overall, the twin forces of wireless substitution and cable telephony are expected to exert rolling pressure on our Voice business and we now believe that full year rate of decline in 2005 will be around 4%. As cable telephony coverage increases, we expect residential access line losses to accelerate.
Let's now go to Slide 26. In the quarter, the contribution from Data Services to Local's overall results continue to expand. Total Data revenue grew by 17% to over $215 million in the quarter or $1 billion annualized. Annualized DSL revenue is now $350 million and represents 6% of total quarterly revenue. Special access revenue grew by 7% year-over-year driven primarily by wireless carrier demand. In the quarter we saw a continuation of the trend of strong Data growth driven by DSL and special access, which offset Voice declines.
Turning to Slide 27, as I promised you earlier, I'm going to conclude my remarks with an update on the separation of the Local business into a strong independent Company. We have completed the filings in the 14 of our 18 states in which we operate that require approval for separation. We are pleased with how our proposal has been received by the state regulators and we now expect the separation to be complete sometime in the second quarter of next year. We have made significant progress on establishing key transitional and commercial business relationships with Sprint Nextel and we expect to finalize these relationships by the end of the fourth quarter. We're also working hard on the required SEC filings.
The Executive Team for the new Local Company's in place and we're in the process of naming the other positions. We have put significant energy into building a new organization, including bringing the business sales resources back into the Local Company and planning for the staffing of our corporate functions. And we continue to believe that we will be able to operate with a manageable level of incremental costs associated with being an independent public Company. Our plan is to be effectively operating as an independent Company early in the first quarter of 2006. This period, before the separation, will be a valuable opportunity to work out any kinks. We will concentrate on separating from Sprint Nextel and building our new Company, plus implementing innovative new capabilities to aggressively attack our competitors, all while we continue to focus on delivering strong operating results. Now I'll hand the call over to Kurt for Q&A.
Kurt Fawkes, Investor Relations
Thanks, Dan. And in just a minute we will go to your questions. I want to point out to folks you may get both audio only and webcast replay of our presentation this morning on our website. An audio only replay can be heard by dialing (866) 215-1938. Or if you're dialing from an international location, it is (816) 650-0742. The webcast and replay will be available at our web site at www.sprint.com.ir. Replays will be available November 14th, 2005. The moderator is now going to provide instructions for submitting your questions.
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