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Executives

John Ebner - SVP, IR and Treasurer

Scott Ford - President and CEO

Sharilyn Gasaway - EVP and CFO

TRANSCRIPT SPONSOR
Wall Street Breakfast

Alltel Corp. (AT) Q2 2007 Earnings Call August 1, 2007 8:30 AM ET

Operator

Good morning. My name is Consuella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alltel second quarter 2007 earnings conference call. All lines have been placed on mute to prevent any background noise (Operator Instructions).

Mr. Ebner, you may begin your conference.

John Ebner

Thank you and good morning everyone. Welcome to Alltel's 2007 second 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 second quarter results.

Today's conference call was preceded by our second quarter 2007 earnings release. This press release has been distributed on the news wires 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 second quarter 2007 earnings press release.

Additionally, to date, 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.

Today, in light of the pending nature of the transaction, we will not be taking questions after our prepared remarks.

Participating in our abbreviated earnings discussion this morning are Scott Ford, Alltel's President and Chief Executive Officer, and Sharilyn Gasaway, Alltel's Executive Vice President and Chief Financial Officer. With that, here is Scott.

Scott Ford

Thank you, John. Good morning everybody. As John mentioned, this call will be a little shorter than normal. I'm going to cover the highlights from our second quarter and provide an update on our pending transaction, and then Sharilyn will take you through the key operational financial items for the quarter. Also, we will end the call after our prepared remarks and, unfortunately, will not be able to take any questions today.

We are very pleased with the results this quarter. On a GAAP basis, Alltel earned $0.56 of fully diluted earnings per share in the second quarter of '07, which includes onetime expenses and several other items disclosed in our supplemental material.

From current businesses, Alltel earned fully diluted earnings per share of $0.75, which represents an increase of 42% over the second quarter of '06. This is driven by the deleveraging from the wireline spend, the $3 billion share repurchase, and both organic and acquired growth.

In the second quarter of '07, we generated $243 million of equity free cash flow, again, an increase of 42% year-over-year on growth in total revenues of 12%.

In addition to delivering great operating and financial results during the quarter, we also concluded the approximately $3 billion share repurchase program begun in July of last year. During the course of that repurchase program, we acquired approximately 50.5 million shares at an average price of $59 per share, including some 6.8 million shares repurchased early this quarter for roughly $422 million.

Sharilyn will walk you through more of the specific results, in a minute, of what was truly an exceptional quarter. These results could not have been accomplished without the continued dedication and the hard work of the entire Alltel team, which has remained focused during the noise surrounding our pending going private transaction.

I'd like to take this opportunity to thank all of those employees for another outstanding job in the second quarter. Time and time, again, this team has found ways to deliver operating and financial results that have proved them to be excellent stewards of our shareholders' money and our customers' trust.

In fact, we will soon close this chapter of our journey having delivered shareholder returns over a five and ten-year timeframe that have outperformed not only the broad markets but everyone in our industry group as well.

As to the sale transaction announced on May 20, in which we agreed to be acquired by TPG Capital and Goldman Sachs Capital Partners for $71.50 per share in cash, the necessary regulatory approvals are progressing well.

As expected, the Hart-Scott-Rodino waiting period expired on July 5 without issue. Proxy statements were mailed to our shareholders on July 25, and the shareholder meeting to approve the transaction is scheduled for August 29.

The FCC filed a public notice related to the transfer of our licenses on June 25, and while we're waiting to hear from the FCC more definitively on the timing of their approval process, we expect a favorable FCC vote this year.

We have received a number of questions from investors and analysts about our transaction, given the current state of the financing markets. Our merger agreement, which is summarized in our proxy statement and available on our website, provides that the obligations of TPG/Goldman Sachs to acquire Alltel are not conditioned on financing.

TPG and Goldman received written commitments at the time of the deal from several of the largest financial institutions in the world to back their obligations. We have been given no reason to believe that these firms will not honor their obligations. So in spite of the noise in the financing markets, we are pleased with the progress we have made on this transaction to date and expect that it will close by yearend.

Sharilyn, I'll turn the call over to you to take them through the quarter.

Sharilyn Gasaway

Thank you, Scott, and good morning everyone. Wireless gross customer additions were 790,000 for the quarter, up 3% year-over-year. Postpaid net additions were a record setting 181,000, up 46% year-over-year. And prepaid net additions were flat during the quarter, lower than the previous two quarters due to seasonal trends.

Our postpaid was churn was 1.16%, and our total churn was 1.67%. This is the sixth consecutive quarter that both metrics improved year-over-year, and they represent record lows for Alltel.

For the quarter, Alltel generated $1.97 billion of service revenue, an increase of $237 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.

ARPU of $54.10 in the quarter was up 3% year-over-year and sequentially. Retail revenue per unit of $48.26 was up 1% year-over-year and 3% sequentially. Data revenue per customer was $5.63 in the quarter, an increase of 73% year-over-year and 20% sequentially. Data revenue is now 12% of retail revenue per unit.

Turning to our wireless wholesale roaming business. Revenues in the second quarter increased 4% year-over-year, as growth in minutes and data usage on our network outpaced contracted price declines.

Total cash cost per customer were $33.06 in the second quarter, essentially flat from a year ago and up 1% sequentially. These costs are down approximately 2% year-over-year, excluding costs related to wholesale transport revenues.

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

For the quarter, OBITDA of $767 million was up 18% year-over-year for a 38.9% service margin, a 130-basis-point increase from a year ago. Depreciation and amortization increased 17% year-over-year, driven largely by the accelerated depreciation of certain assets, as we continue to upgrade our network with EVDO.

Our tax rate from current businesses was 38.6%. Capital expenditures totaled $325 million, and we ended the quarter with a net debt balance of approximately $2.3 billion.

With that, let me hand the call back to Scott for a few closing remarks.

Scott Ford

That's a good quarter and a brief call.

Sharilyn Gasaway

It is.

Scott Ford

Thank you, Sharilyn. Before we end what we expect to be our last earnings call, I wanted to take the opportunity to thank our shareholders and the industry analysts that have supported us over the years.

Many of you have invested in us and followed us for a long time through all the ups and downs from our beginning as a publicly traded traditional landline telco to the pure play wireless company that we are today. We have always taken seriously our responsibilities as stewards of your money, and we greatly appreciate the trust that you have placed in us over the years.

With that, I'd like to thank you for joining us this morning. As always, we appreciate your interest and support. If you have any questions, you please feel free to contact our Investor Relations department, 501-905-8991. Tim Hicks, our Director of Investor Relations, will be available at that number.

And with that, we thank you and wish you a good day.

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