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Here’s the entire text of the Q&A from Sprint Nextel’s (ticker: S) Q3 2005 conference call. The prepared remarks are 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.

Question-and-Answer Session

Operator

OPERATOR INSTRUCTIONS First question is from Jason Armstrong, with Goldman Sachs. Please go ahead

Jason Armstrong

Great. Thanks. Good morning. A couple of questions. First just a clarification. The $14 billion in OIBDA guidance there, I want it make sure we're all clear to what the base actually is in the first three quarters. I'm calculating about 10.6 billion but just I would love sort of clarification if that's actually the right number. And then second, can you talk about Wireless CapEx specifically as we head into '06, was sort of five billion at the starting point. Does that number move up in 2006 and can you give us a sense as to the essential magnitude?

Gary Forsee

The 10.6 number is the right baseline. If you want to repeat the second question, Jason?

Jason Armstrong

The second question was on Wireless CapEx. Thinking about it sort of trending into 2006 and we have a five billion number that you've thrown out there for '05. I'm wondering can you give us a sense, does that number move up or down in 2006 in any sense of the magnitude?

Len Lauer

Yes. Jason, this is Len. Consistent with Gary's reference that we upped the synergies, that we also have put in an incremental $4 billion in CapEx which is above and beyond the stand-alone plan, stand-alone legacy, Nextel legacy, Sprint. So that will happen over the next three years. So yes, you ought to expect Cap, Wireless CapEx to go up next year.

Jason Armstrong

Any sort of magnitude?

Len Lauer

We're really not setting guidance yet so don't want to give you order of magnitude yet.

Jason Armstrong

Okay. Thanks.

Operator

The next question is from Steven Glick, Credit Suisse First Boston. Your line is open go ahead.

Steven Glick

You talked a little bit about what happened to turn this quarter. It looks like if you do the math that turn picked up probably at both legacy businesses. Just wondering if you can talk a little bit about whether those issues have been addressed and what we could expect it see in the fourth quarter? And secondly, are you seeing any sort of a pickup into the fourth quarter from your rebranding campaign? Usually you'd expect, given the increased marketing dollars, a tick-up on gross. Thanks.

Len Lauer

So two questions, one on turn, one on rebranding. On turn, I think, as we commented, the turn has gone up. It's down year-over-year but it's up slightly sequentially and it's primarily due to involuntary turn coming from our iDEN base of customers. And I think we talked to this before. The correct decision was made, that given the popularity of iDEN services and the best performing, Push-to-Talk, to also increase the exposure of consumer base, and as you do that, you are going to have, a greater portfolio sub-prime customers which means you'll have a little bit higher involuntary turn. So that's what we're seeing in the results. That's the primary reason for it. As I commented on the, it's due to involuntary. On the voluntary side, on CDMA, it's the lowest point we've been in a long time. On the voluntary that's primarily due to fair and Flexible. Now as we go into, also involuntary turn tends to be higher, once you come out of the second quarter. Second quarter is always low for involuntary turn. So we're not setting turn expectations for fourth quarter, right now, but we don't anticipate too much of a change from what you saw from third quarter. I think your second quarter on rebranding, you have to take confidence in the guidance we just gave for fourth quarter. If you're wondering if it's higher gross Ads, we stated, and Paul stated that, guidance is 1.4 million net Ads. With strong sequential growth for both PostPaid and Prepaid. That compares to third quarter performance of slightly under a million. So that's a, over a 40%, 45% increase, and I think you ought to take that as an encouraging sign of the effect of our branding campaign.

Steven Glick

Great. Thanks.

Operator

The next question is from Michael Rollins, Citigroup.

Michael Rollins

A couple of questions on distribution. The first is you've expended distribution for Nextel, for example, in the Radio Shack stores and I assume you're giving some for the Sprint as well. Can you talk about the early progress on whether you're seeing a pick up of the new product sales as they're going into the new stores? And then secondly, as it relates to your broader marketing strategy, do any of the ongoing negotiations or processes with your affiliates effect your ability to market in your key larger cities and nationally, for that matter? Thanks.

Tim Kelly

Michael, it's Tim. I'll take the first part on distribution strategy. We are making good progress with the distribution. I think Len referenced in the script, that now 90% of locations are selling both products and measured by cross product sales, we're seeing good steady pickup week-over-week, cross product sales meaning filling in iDEN handset in a legacy Sprint location or vice versa. We also began the rollout of the iDEN services in Radio Shack about two weeks ago. And while it's a little bit early to get results there because the product is just going in and it will be feathering in over the course of the next couple of weeks, we're very encouraged about what that can do to drive overall gross ad performance in the fourth quarter. We think the Radio Shack demographic marries very well with the iDEN user and obviously it's a big Wireless destination, particularly as we go through the fourth quarter. So things are moving, I think very favorably in that area.

Gary Forsee

Michael, it's Gary. I'll take the second question around impact on the ongoing discussions with affiliates on selling capabilities. Our affiliates, mostly operate in second, third, fourth tier markets so in terms of impact on major campaigns in the “NFL” cities, that would be De Minimous, if existent at all. And while we do have forbearance agreements in place, as we work our way through resolution with the affiliates, again, there is minimal impact on the selling activity because we maintain the legacy Nextel capability without rebranding and so the selling activity continues. So again, we certainly want to get this behind us and expect to do that over the next few months. But at this point in time, I think that answers your question.

Operator

The next question is from Christopher Larsen, with Prudential Securities. Mr. Larsen you now have the floor.

Christopher Larsen

A couple questions. First, the $200 million in cash from Virgin, could you talk about why the cash came back and any plans there for an IPO. Secondly, Len, are we seeing any firming of pricing in the LD space? And then third, I'm guessing I know the answer is no comment, but I'm going to ask it anyhow. Is there any sort of a timetable, I know there's a timetable for Nextel partners because it's been out. But is there a timetable that you have in terms of how quickly you want to resolve the Sprint affiliate issues?

Paul Saleh

On the first question about Virgin, they raised some financing and we received basically our proportionate share of distribution of that financing, which was recorded in the third quarter as cash.

Christopher Larsen

Was that equity? I'm sorry, Paul. Was that equity or was that debt returned.

Paul Saleh

I think it was actually, it was a financing that they have done, but it was a return to us. But it was classified more as a reduction of our capital investments in them.

Christopher Larsen

Okay.

Len Lauer

I think, Chris, your question on Long Distance, it's probably third quarter in a row, we have not seen any new price floors setting which is encouraging for us. As you know, we're still going through a period of passing on price reductions from probably about a year ago. And in addition, we take a look at our yield in our Long Distance business. The rate of decline is slowing down from a yield standpoint. I think that's why you see the encouraging trends we reported, especially in the business segment where both sequentially, year-over-year, our revenues were up, so we're encouraged by the signs.

Gary Forsee

Finally, on the affiliate time line, again, I think what I would say, which I indicated it, September Analyst Meeting, that we just closed the merger in August and until we closed and solved, how the break down would be, rolled out and a timing of that, and had regulatory approval, it was really difficult to engage fully with the affiliates. We certainly had discussions along the way. But until we closed, we really couldn't sit down and begin understanding the various options. And I would continue to point out that acquisition isn't the only option, reaffiliation certainly has continued to be a topic for discussion. So there is no time line certainly, it will serve us all well to get this, past us. And as I've continued to indicate, we would hope to do that over the next few months.

Operator

The next question is from Tom Lee, with J.P. Morgan. Mr. Lee you have the floor.

Tom Lee

I have two questions. One, I just want to follow up on Michael's question about distribution. I was very curious, post merger and, as you have the new product and the new brand rolled out, have you had any challenges with prioritizing, like what the consumer might want to have pushed to top product versus vision? If you could just talk a little bit about sort of the challenges, I guess in training your retail reps and what customers sort of adoption rates look like for both? And then the second's a kind of a broader industry question, I like at third quarter results and I'm looking at your numbers and across the street and seeing very good EBITDA generation on subscriber numbers that don't seem to be as strong. When we start looking at '06 and think about how to gauge the success of this merger, is there a metric besides net additions that we should be thinking about or what's the best way for us to measure the success of this merger? Thanks.

Gary Forsee

Timmy, I'll take the first question on distribution. A couple comments there. I think first as we looked at the distribution profile, we worked hard to try to match product availability with the nature of that distribution. So we haven't taken every single handset skew and put it in every single point of distribution. We tried to look at what the demographic patterns were in those particular outlets, what their square foot capacity was and things of that nature to make sure we're driving the right product to the right store by the maximized sales. So you'll see a different lineup in the legacy Nextel stores then you will see in the legacy Sprint stores, they'll different in the kiosks and obviously, different yet again at Radio Shack. And all that, again, is based on our assessment of where the stores are and who shops there. Then in terms of how we qualify, we spent a lot of time working with front line reps on training around product benefit feature and handset and helping them with the qualifying questions to steer people in to Push-to-Talk, or into Vision services to use your example. Obviously, if they're very direct connect oriented, based on the type of consumer pattern that they have, either a family user or perhaps a small business user, then obviously we direct them heavily towards a Push-to-Talk product. If they're more of what we call a young connected segment, interested in data, obviously we use qualifying questions to assess that and then steer them towards those types of products, as well.

Len Lauer

Tom, this is Len. Your second question, I think, is an important one. I want to make sure we answer it fully. I think your question was set up as a, is there are things more important in net ads as we track wireless companies and the answer is absolutely yes. Although net ads and gross ads are important and they're important to watch in terms of how a company is performing relative to it's peers share of decisions. I mean with piece then we're focused on that. But the heavy focus we also have is on strong margin improvement to our shareholders. And when you think of the synergies that Gary announced and reemphasized today, and think of how those synergies come into play over the next several years, we have a very, very opportunistic period to strongly grow the margins in our business. And while we'll do that, we need to make sure that we are very focused on our cost, which is a part of the synergy announcements and the scale we can achieve, we'll be very focused on average revenue per user. We feel very good about our position in data. And not only what we've done on CDMA but what we've done on the iDEN with Blackberries and with other services, such as location based services and how we can grow this across both iDEN and CDMA. And so that we're very, very focused and not just trying to chase gross ads but making sure we're going after profitable gross ads. And as we do this, that we can grow the ARPU and really leverage our scale and substantially grow margins. As our stock is valued as multiple of OIBDA, we are very encouraged as to how we can drive that OIBDA over the years ahead of us. So, the main considerations are really going to be the margin expansion, making sure we have the balance on ARPU, and we are industry leading in ARPU, and we maintain to stay industry leading. And while do that, that we have very good customer service and we participate in the gross and net. But that is just one indicator, it is not the only indicator.

Operator

The next question comes from Colette Fleming, UBS Warburg. You have the floor. Go ahead.

Colette Fleming

Just a couple things I would like to clarify. If you look at the guidance for Nextel stand-alone and Sprint stand alone prior, you come to about 14.5 billion. So that number should be adjusted down by about 360 million for comparable basis just for stock-based compensations? So you really looking at prior guidance of maybe 14.1. Also, on Len's comment, I thought that there was guidance for CapEx of next year of six billion for the Wireless and Long Distance. I just wanted to clarify that. I thought that that was already given out. And then just regarding the turn, it looks like Nextel's turn historically was written up by about 0.2% a quarter on a monthly turn basis. I actually thought the turn came in slightly lower than what we were looking for on adjusted basis and just wanted to clarify that. Because, going from 1.9% sequentially to 2.2, I think is in line with what you would expect from a seasonal basis. Thanks.

Kurt Fawkes

Colette, this is Kurt. I'm going to take this. First, the answer is yes. And the second one is yes. The 90 million that I referenced is a quarterly number. It's in our proformas, our historical proformas, and you should expect that kind of level of charge going forward. So 360 is the right number.

Paul Saleh

On the CapEx, you were right. Actually at the, when we at the Goldman, right before our, the Goldman Sachs conference, we provided some merger integration update, and we did say that next year, Wireless and Long Distance capital was going to be approximately $6 billion. And we estimated about a billion dollars in addition to that on rebanding. So $6 billion in Wireless and Long Distance would compare with 5.3 this year.

Gary Forsee

And Collette your last question on turn, the change in terms of re-establishing a common base of the new Company, how report term increase probably about 15 basis points as a result of that, and the other increase you see is primarily due to involuntary. To your point is probably lower than what you what you were thinking. Again, the benefit from having lower voluntary on the CDMA sideshows that health and we're also doing okay in voluntary on the iDEN side. So I think we benefited from that and that offset some of the involuntary increases.

Colette Fleming

Okay. Thanks.

Operator

The next question from David Janazzo, Merrill Lynch.

David Janazzo

There have been a few news articles recently talking about a consortium of Cable and Sprint. If you were to enter into a partnership, what would be the thought process on the Sprint side and what would be some of the requirements or needs of Sprint to get into such a relationship?

Gary Forsee

This is Gary. Sprint has certainly positioned itself over the years with the cable industry as a provider of services, and as Len talked about, we have now established ourselves as a voice enabler with the cable industry and will certainly hit our milestone of a $100 million dollars run rate in that business and currently we're over 600,000 customers. And I think to comment on some of the press speculation would be inappropriate. But we have also been clear that as we think about our opportunity to work with others and establish a bundle that could include Wireless is something that, should they decide that's important, then we would certainly intend to be at the table to pursue that. I think to go beyond that in terms of terms and conditions and what things are important wouldn't be appropriate at this time.

David Janazzo

Thank you

Operator

Next question is from David Barden, with Banc of America. Your line is open.

David Barden

I want to ask just a couple of questions. The first one was I wanted to go back to the guidance question and, just again, the midpoint of the old combined guidance was 14.5. If you add the midpoint of the merger synergies, it’s another $50 million. So 14.6 billion or so, less the 360 million of options expense gives us a 14.25 number. The new guidance is 14 billion. I'm wondering if you could explain the difference between where the old guidance is plus merger synergies and where the new guidance is? The second thing would be, just on the 3G and Rev. A deployments. I think when the original Sprint 3G announcement was made about EVDO build, we were talking about very positive equipment vendor relationship where there is going to be a would be an upgrade to Rev. A for next o no incremental capital. And I was wondering if you could kind of pinpoint when we should start to see the drop off in the 3G, Rev., EVDO capital come into play and obviously the free cash flow start to grow on that basis? And then maybe the last question, just to Dan, kind of taking the reigns in the Local Business. Dan, could you talk about what you see as your mandate with that Local spinoff? You talked a little bit about growth. Are you talking a little about returning value to stockholders? I think there's a strong belief that, that business could be maximized, in terms of value, if you maximize the return to equity holders in terms of cash flow as opposed to M&A or reinvesting. But I'd like to get your thoughts on that. That would be great. Thank you.

Paul Saleh

Well, on the first one, on the guidance, we certainly have, if you look at the prior guidance on a separate basis, you have to factor the $360 million worth of options. That's the first element of it. And then we said, we had a little bit lower net ads in the third quarter that carried basically into the full year impact. We also expect quite a bit of strong growth in the fourth quarter in terms of net additions. So when we say approximately $14 billion, that should really kind of cover it.

Gary Forsee

I think your next question was on CapEx and cash flow related to DO. So as we've mentioned, we'll complete our initial buildout of DO to about 150 million pops by early next year. And that will, help us a little bit in terms of the DO capital employment. And we also, on the expense side obviously are hooking at a lot of T1s for backhaul. And that's one of the reasons it hit us on the margin side in this quarter and that will be relieved as we bring on more customers for DO services and as we get the handsets out there. But at the same time, remember we did say that with DO, Release A, you are correct that in our negotiations with our main infrastructure vendors, that was included for a fairly small addition when we do the upgrades. But remember in our guide, when we talked about our combined networks out of 2008, when we bring Qchat onto CDMA and take the best performing Push-to-Talk and put that on the CDMA network we said we'd build out DOA to our entire network. So read that as going from 150 million pops up to the 250 to 260 level. So that will be incremental capital needed to deploy because obviously we won't have DO there. And we're still determining what time frames we do that, if we do it between now and then or if we wait for DOA to come out.

Dan Hesse

Am I next?

David Barden

Yes, you are, Dan. Sorry about that.

Dan Hesse

Our plan is to try to grow this business. I have focused in my comments mainly on the kind of a traditional businesses Voice but also talked about Data and the fact that Data is growing. We also are going to have as part of the new Local Company, we sell Sprint PCS very successfully today. The plan is that we would be a MVNO of Sprint's going forward and as well as having capabilities in Data, as, I mentioned. And selling video via our relationship with Dish, I think we have an opportunity to grow our share of the customer spend, particularly as we are able to truly integrate these different capabilities at the feature level to make things more simple for our customers, which really hasn't been done yet. So we really think there are some real opportunities to grow the business both top line and hopefully bottom line over the long term. You mentioned M&A, and that's not something that we're thinking about currently. We're focused on separating in a tax efficient manner.

David Barden

All right. Guys. Thanks so much.

Operator

The final question comes from Tim Horan, CIBC World Markets. Your line is open, go ahead.

Tim Horan

Two questions, one on the Wireless ARPU side. Do you think we can we shoot some stability next year with the overage working through and EPPO and iDEN growing a little bit more? And then secondly, can you give us a little bit more rationale behind the competence in the fourth quarter subscriber trends here which seem to the guidance seems to be really strong, what you kind of see in the September, October. And it sounds like that kind of distribution machine is still ramping up at this point. What point do you think will you reach kind of an optimal kind of tuning on that distribution machine at this point? Thanks.

Len Lauer

First question about Wireless ARPU, and what we expect, what's the declines we've seen in overage because of the Fair and Flexible offerings, what would we expect that to kind of bottom out and also we start to see the increase in DO. I think the other piece would also be the third part of the question would be minutes of use that we're seeing. So across the three, first on overage, we'll continue to see some declines. I wouldn't really estimate for you yet when that will bottom out. But we're probably, it will be sometime next year. We're not too far away from that. The one piece we haven't talked about, obviously as a result of that we should see very good improvements in lower voluntary turn. We're seeing that's the one of the main reasons besides Customer Service Network improvements, we're seeing that on CDMA. As we get more of the CDMA base, we're now offering that to our iDEN base onto Fair and Flex, I think longer term we'll see very good results from that. On the DO side, our Wireless Data ARPU across our new Company increased 40% year-over-year. So we'll continue to see good demand. And your point, having the DO and especially we're very excited about the multitude of handsets we have along with the entertainment services, along with the appeal of the DO air card s we'll have from Mark and his team in the business sector, we think we can do well with that. That being said, we will see declines on Wireless ARPU in terms of Voice component of Wireless ARPU. And that's because as minutes of use, the increase starts to slow down for the industry. But we hope to make that up on the Data side. So I don't want you to think that suddenly ARPUs are going to be going up. But I think we can stay close to the ranges that we have been in from a Data ARPU standpoint looking into the future.

Gary Forsee

Okay. That's going to conclude our

Len Lauer

Your second question was on fourth quarter guidance around our, the quote distribution machine and whether we think that can be optimized. Tim, do you want to take that?

Tim Kelly

Yes, I will take that. It is ramping very quickly as we said before. The Radio Shack business with iDEN now being in will be at realizing full capacity as we go into the peak fourth quarter selling season. That's important. Also recognize we have a lame duck competitor at Radio Shack right now. I believe we are taking share and we're doing things jointly to drive the business there with cooperative advertising, particularly around the iDEN Services to make sure they take hold quickly. Second point to make is that we're going to run with our existing distribution footprint through the fourth quarter. We're not looking at scaling back locations in the fourth quarter. Rather, we're going to try to keep as much distribution horse power as we possibly can and then as we get that experience coming out of 4Q, at 1Q we'll look at what kind of reductions we want to make to optimize the footprint. The other thing we're doing is in the advertising arena. We're spending about 80% of our total media weight now behind product promotion and traffic driving sorts of messaging, and that messaging is carrying both the Sprint brand but it's also strongly reinforcing the Nextel product brand and the Nextel locations that is have yet to be rebranded over. So I think we have our advertising dollars pointed in the right direction to ensure that we get great momentum here in 4Q.

Tim Horan

Thank you.

Kurt Fawkes

Okay. That's going to conclude our call. Sorry about cutting you off prematurely there. Today you can give us a call in Investor Relations if you have follow on questions. I can be reached at (913) 794-1140 and Steve Ross is also going to be here in Kansas City today at (913) 794-3317. And Marty will be at his usual number, (913) 794-1020. Thanks again for joining us and for your continued support of Sprint.

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