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Sprint Nextel Corporation (NYSE:S)

Q3 2007 Earnings Call

November 1, 2007 8:00 am ET

Executives

Kurt Fawkes - VP of IR

Paul Saleh - CFO

Mark Angelino - President of Sales & Distribution Organization.

Tim Kelly - CMO

Bob Johnson - CSO

Analysts

David Barden - Banc of America

Rick Prentiss - Raymond James

Jason Armstrong - Goldman Sachs

Simon Flannery - Morgan Stanley

Chris Larsen - Credit Suisse

Jonathan Chaplin - JP Morgan.

Tom Sykes - Lehman Brothers

John Hodulick - UBS

Craig Moffett - Sanford Bernstein

Phil Cusick - Bear Stearns

Michael Rollins - Citigroup

Ben Abramovitz - ICAP Securities

Tim Horan - CIBC

David Janazzo - Merrill Lynch.

Operator

Good morning. My name is Denis and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprint Nextel Third Quarter 2007 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

I will now turn the call over to Kurt Fawkes, Vice President of Investor Relations. Please go ahead, sir.

Kurt Fawkes

Good morning, everyone and thanks for joining us. In a moment, Paul Saleh will discuss third quarter performance and our near term priorities, and following his remarks we will open it up for Q&A.

Slide 2, is our cautionary statement. I want to point out that in our remarks this morning we will be discussing forward-looking information, which involves a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a detailed discussion of various risk factors in our SEC filings, and I strongly encourage you to thoroughly review these filings.

Throughout our call, we will refer to several non-GAAP metrics. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures for the third quarter can be found on the attachments to our earnings release, and also at the end of today’s presentation, which is stored on our website at www.sprint.com.

Slide 4, provides the normalizing of net income and earnings per share for the third quarter. We reported net income from continuing operations of $64 million or $0.02 per share which compares with income of $279 million or $0.09 per share in the year ago period. Special items in the third quarter totaled $136 million after tax, and that’s $0.05 per share. The incremental PowerSource related cost were approximately $20 million and are included in this amount. Adjusted earnings per share before merger related amortization expense was $0.23, which compares to $0.32 a year ago.

Before we get started, I want to point out that we implemented changes to our postpaid churn calculation logic in the third quarter. These changes which we've discussed previously primarily relate to intra account netting of gross additions and deactivations. This reduced our reported postpaid churn by approximately 10 basis points or about a 120,000 units. And it resulted in a corresponding decrease in our gross activations. There was no impact on our reported net additions, and of course the changes did not affect financial results.

Now, I am going to turn the call over to Paul.

Paul Saleh

Thanks, Kurt and good morning everyone. I want to thank you for joining us today. Before I talk about our third quarter results, I'd like to briefly touch on a few topics that I know are of interest to you. First and foremost is the CEO search. At this point, I can only say that the Board is active in its process to select the most capable and qualified individual. Of course, I cannot provide any details on candidates, timing or selection criteria, but the board is working to fill the role as expeditiously as possible.

In this interim period, we are not standing still; we are acting decisively. We have had candid internal reviews and we are united around two key objectives: improve the customer experience at every customer touch points and simplify our business. I will discuss these in more detail in a minute, but I want to convey right from the start our commitment to operational discipline and better execution.

I would like to take this opportunity to thank all of our employees for your efforts over the past several weeks and for maintaining your focus on the core business. Your contributions and hard work are key to our success.

With regard to the status of key strategic initiatives, we are continuing to prepare for soft launches of WiMAX in the Baltimore, Washington and Chicago markets, late this year. Additionally, we are planning to introduce Nextel Direct Connect on our CDMA network in early 2008.

Finally you should know that I am joined here by several members of our operational lead team who will participate in the Q&A session. They include Mark Angelino, President of our Sales and Distribution Organization, Tim Kelly, our Chief Marketing Officer and Bob Johnson, who was recently appointed Chief Service Officer.

For those of you who may not know Bob, he recently served as president of our northeast sales region and has broad operational experience across, both sales and customer care operations. His background is a natural fit with our heightened focus on improving the overall end-to-end customer experience across various such points, and I am excited to have him heading up this part of the business.

Now with that, I'll move into our results and starts with our highlights on, on slide 6. From an operational standpoint, our wireless network continues to operate at best ever levels, both on CDMA and iDEN. In September, every single one of our iDEN markets, and I repeat, every single one of our iDEN markets outperformed historical best on dropped call rates.

Second, our advertising is starting to breakthrough. Leading indicators have purchased consideration are trending up materially, and we've seen positive movement on key brand attributes. These early indicators give me confidence that our brand positioning is on target.

In addition to our marketing message, we also bolstered our handset lineup, recently adding very competitive PDAs and media messaging devices that have been well received by our customers. We recently launched the new Palm Centro and the LG, Rumor. The Centro as you know has received strong product reviews.

Also in this quarter, we will be introducing the Touch by HTC. This is the first true broadband wireless device which utilizes touch-screen technology, and has robust email and web capabilities. We will also be introducing several new iDEN Direct Connect devices starting in November.

Last quarter we discussed some challenges we were experiencing in customer care, and investments being made to improve performance in this area.

I'm pleased to report that substantial progress has been made and that key service metrics have restored to levels we were experiencing before the challenge is surfaced. Now the key takeaway here is that most customer care issues are now behind us. Having said that, there is more work to do to further improve customer service and more broadly the end-to-end customer experience.

Another area of challenge is customer retention. Churn remains high in the third quarter and was up materially on a sequential basis. I will discuss the drivers of churn later in my remark.

Higher churn led to mix wireless results in the quarter. Our gain in CDMA subscribers were offset by losses on iDEN. And in the wireline business, we posted solid results as our efforts to move to an OIP platform continue to gain momentum.

Let's turn to the next slide, and I'll elaborate on these results. Exiting the third quarter, we had approximately 54 million total wireless subscribers on our networks. Compared to the third quarter of last year, this is an increase of 4% driven by growth in wholesale and pre-paid, slightly offset by a decline in our postpaid subscriptions.

Net operating revenues of $10 billion were relatively flat sequentially and down 4% year-over-year. And that was mostly due to lower wireless revenue. Wireless revenues were $8.7 billion in the third quarter compared to $8.8 billion last quarter and $9.1 billion a year ago.

Adjusted OIBDA of $2.9 billion in the quarter was relatively flat to the second quarter, but down from the $3.4 billion in the third quarter of last year. Our adjusted OIBDA margin in the third quarter was 30.7%, which is up slightly from the second quarter, but below the nearly 35% we reported in the last year.

Wireless margins were 32.4%. Wireline margins were nearly 18% for the third quarter but likely will tamper in the fourth quarter, and you should know that our margins in the quarter benefited from lower variable compensation. CapEx of $1.2 billion in the third quarter were below prior periods, due to draw down of inventory and timing of projects. This contributed to solid free cash flow of $1.3 billion, up from about $200 million in the second quarter and $800 million one year ago.

As I will discuss later, we're now expecting lower capital spending for the full year 2007 as we heighten our focus on free cash flow and return on invested capital. Now, let's turn to the next slide, which provides additional detail on revenues. As you can see from the chart on Slide 8, the sequential decline in total revenues this quarter was due to lower wireless service revenues. Wireless service revenue was down sequentially on lower ARPU on both platforms and fewer iDEN postpaid subscribers. Postpaid ARPU was $59 in the third quarter compared to $60 in the second quarter and $61 in the period last year.

Compared to the year ago period, CDMA subs and ARPU are up, while iDEN subs and ARPU are down. Wireless data revenues continue to be a bright spot for us. Data ARPU passed the $10 mark in the quarter and now accounts for about 17% of total ARPU. Now CDMA data ARPU was over $13 and represents, now, more than $1 billion of revenue in the quarter.

Strong demand for aircards and messaging services are the largest contributors to data growth. Aircards subscription grew to over $1.5 million by the end of this quarter, the third quarter, and we are approaching $10 million text messaging users.

Equipment revenue was up sequentially as we made some adjustments to our all in handset pricing, which reduced subsidy and benefited margins. Compared to the prior year however, handset pricings and discounts are more aggressive, which is a competitive trend we're seeing across the industry.

On the wireline side, overall revenue decline reflects continued pressure on traditional retail voice, which marks the positive momentum we're in IP. Wireline IP revenues increased 43% year-over-year and represent now 25% of our total wireline revenue base. We're continuing to make progress on our migration to an all IP, and I am pleased to report that IP ports now exceed frame relay and ATM ports combined. Our current plan targets completion of the migration around the end of next year.

Turning the next slide, I'll discuss the trends we're seeing with postpaid wireless subscribers. As you can see from the chart at the top of slide 9, we've seen a material shift in the mix of our postpaid base over the last year. The overall size of the base is fairly flat with CDMA subscribers now account for a larger percentage of our base.

We've talked about the challenges with iDEN subscriber performance for a few quarters. As we had indicated previously, perhaps the greatest impact to our iDEN subscriber numbers originates with the options we took to address network quality and capacity issues associated with our re-banding efforts during the summer of 2006.

But simply, we curtailed acquisition on iDEN for several quarters, while we work through the challenges. This was accomplished through tightening credits, reducing sales incentives and pulling back on media spending directed at the Nextel brand. And we also limited new device introductions. But that's in the past, and behind us. Today, we are very confident in our network performance and starting this quarter we will begin to reinvigorate the Nextel direct connect franchise.

We will be introducing three new iDEN devices in the next couple of months, and we will be rolling our Nextel Direct Connect on CDMA in early 2008. Our objective here is to reverse the subscriber trend on iDEN and reinvigorate this valuable franchise.

At the bottom of this slide, we illustrate current challenges in our wireless business. Customers churn increased from 2% in the second quarter to 2.3% in the third quarter. The churn increase in the third quarter was due to seasonal influences and competitive conditions. In addition, the macroeconomic environment we experienced this summer created incremental pressure on our subprime subscribers. We also experienced an increase in higher voluntary churn associated with challenges in customer care. Based on these trends, we now expect our subscriber performance in the fourth quarter to remain under pressure.

Moving on to slide 10, I want to discuss what I think is the most important information for you to hear today. We are operating with the renewed sense of urgency and are committed to take dramatic actions to fix our business.

Every employee in the company today is focused on just two objectives; it is that simple. We will improve the customer experience and simplify the business. We know that our current customers are our best customers, and we must direct more resources to keep them. Our current customers spend more with us than the new customers we acquire. They also have a higher customer life time value because of their higher loyalty to our brand.

So, we must treat our current customers as our best customers, and let me tell you specifically what we are going to do. First let me start out with marketing. We will be changing our messaging and offers to better balance subscriber retention and acquisition, and we expect to launch a series of programs to reward our existing customers. We plan to revise our subprime offering, to improve the web based tools those customers use to manage their accounts and improve their customer satisfaction. We will also continue to seek to enhance the economics of subprime customers, including potentially leveraging our Boost Unlimited offer for these market segments, as we make that service more broadly available.

We will limit the number of product and service launches so that each one provides a great customer experience at every stage, from the point of sale to follow-on customer support. And we plan to leverage our web experience to significantly improve and simplify customer self service capabilities. We plan to modify our pricing plans to make them easier to understand, and we intend to have more customer friendly policies, and we'll have more to say on this in coming weeks.

Let me move on to sales and distribution. Today, we have too much complexity in our distribution channels, which resulted in inconsistent customer experience, too many errors in account setup, and more frequent calls to care. We are going to tackle this head-on and fix it. We intend to rationalize poor performing distribution points, and we will insist on consistency in customer experience extending across all channels. We will also extend service and care capabilities in our source to better serve our customers.

We plan to focus on our small and medium business franchise. We currently serve over 800,000 business accounts in this market. We'll focus on adding new accounts among these businesses and growing revenues within accounts. And so in addition, as we planned for 2008, we will be aligning compensation and other incentives to reward customer retention, as well as acquisition.

Let me mention what we are doing in customer management. We have a number of initiatives underway. Over the past three months, we've added more than 4,500 customer service reps in our care centers, and this is paying-off with improved answer times, fewer repeat calls and better customer satisfaction. But this is not the long-term solution. Long-term, we need consistent execution at all customer touch points. We need to complete the migration of our customers to a single billing platform.

Let me be very clear here; this is more than just a billing platform. It is our customer service engine. It integrates front-end customer activation tools to billing and customer support.

In October, we resumed the migration of over 1 million subscribers to the platform and we expect to transition an addition of 5 million by year end. That will leave about 30% of our postpaid customers to complete the migration in early 2008.

Now, this consolidation will greatly enhance our ability to consistently and effectively roll-out new products and better serve our customers. Now, this consolidation also should enable us to enhance the productivity of our sales reps and enable them to better manage some basic elements of care, such as upgrades.

Now in the care operations, we are working with our vendors to drive quality and consistent performance across our call centers.

And finally, we are working to increase the quality of executions of our launches and new offers to reduce calls to care.

So as I said earlier, we've developed this plan after a candid and open discussion with the senior management team, and we are united as a company in our commitment to take action and execute on this plan.

Now, let me turn to slide 11. And I’ll discuss trends in our Boost Mobile business. As many of you know, the pay-as-you-go service in Boost is a walkie-talkie centric offering, which we launched in 2002. Boost garners a premium for cellular minutes and $1 per day for the walkie-talkie service. This service has been very successful, attracting 4.3 million customers with a good OIBDA contribution and a positive customer life time value.

In 2007, Boost has experienced a challenging economic environment affecting the sub-prime segment of the marketplace, as well as an increasingly competitive environment including unlimited calling plans from disruptive carriers.

In addition, we have limited availability of Boost pre-paid products in some of our largest markets as we have been going through our rebanding efforts. So as a result of these factors, our growth ads are down on a sequential and year-over-year basis.

For the third quarter, we reported negative net ads for pay-as-you-go, and this will likely continue in the fourth quarter. The Boost subscribers are also changing the usage behavior given our current pricing. They are using fewer cellular and walkie-talkie minutes which impacts ARPU.

Now, Boost is responding to these trends with loyalty programs, new handsets and its Boost Unlimited offering. Earlier this year, Boost launched its unlimited calling plan in California and Texas, who have added approximately 226,000 subscribers since our launch, and we are enhancing the service. This is what we're doing. We are expanding the handset line-up with the thin Motorola flip phone. We are launching the service in 10 new states covering approximately 50 million parts. We are expanding distribution to include more than 900 Wal-Mart locations within our footprint, and we will have the product in the Radio Shack stores this month. And we are introducing wireless data services including web text messaging and picture mail services.

Now, criteria for the success of Boost Unlimited is very clear; generate a strong customer life-time value, which is measured as a life-time revenue less acquisition service and capital cost. We are already encouraged by the trends we're seeing in this business and by the take-rate of unlimited bundles in the $45 per month to $55 per month. We believe our coverage and network advantage will allow Boost Unlimited to capture a growing share of growth adds in this market segment.

Now, let me turn to capital spending, and I would like to update you on capital expenditure on slide 12.

For the third quarter, we reported $1.2 billion of capital spending, bringing our year-to-date total to $4.5 billion. Capital expenditures were lower in the quarter due to a draw down of inventory and project timing.

In wireless, we've been spending on capacity and coverage to support growing voice and data services on the CDMA network. We've expanded our EVDO Rev A footprint to 215 million covered POPs and we plan to reach nearly 230 million POPs by the end of this year. This investment was necessary to support our 2008 launch of Nextel Direct Connect utilizing QChat technology. For iDEN, our capital focus is on maintaining best ever calling metrics while rebanding 800 megahertz licensees.

Now, although we expect the fourth quarter capital spending to be seasonally higher than the third quarter, we expect full year 2007 wireless capital spending to be below our previous guidance as we focus on free cash flow and return on invested capital.

In the wireline business, we are investing capital to support the growth of MPLS and Cable VoIP growth. Cable VoIP subscribers are now 2.6 million double the number from a year ago.

In our WiMAX business, we spent $73 million in the quarter as we prepaid for our upcoming soft launches in DC and Chicago, while developing size in other locations. Our full year 2007 spend on WiMAX will also likely be below our previous guidance.

On a go forward basis you should expect our total capital spend to reflect current wireless subscriber trends, emphasize retention of current subscribers by concentrating primarily on quality of the current footprint, support the WiMAX build-in select market as well as meet the strong demand for wireless and wireline data services, and we will seek to deliver higher level of capital efficiencies.

Moving to slide 13, I'll touch on the balance sheet and our outlook for the rest of 2007.

Sprint Nextel is maintaining solid financial strength. We continue to produce significant free cash flow despite some of the pressures on our operations. Year-to-date free cash flow was nearly $2 billion. We have ample liquidity including $2.2 billion of cash, and we have no debt maturities until November of 2008.

In the quarter, the company purchased approximately 21 million shares of its common stock in the open market for a total investment of $432 million. Purchases in the quarter were predominantly in July and August, and the company has since taken a conservative approach reflecting capital market in macroeconomic conditions.

The company has purchased a cumulative total of 185 million shares of its common stock for $3.5 billion under a $6 billion authorization that is said to expire in the first quarter of 2008.

As we told earlier, the postpaid subscriber result of the third quarter and trends heading into the fourth quarter caused us to lower the guidance we had set out for you at the beginning of this year.

As a result, the company is tracking slightly below the low end of its target of $41 billion to $42 billion of consolidated revenues and slightly below the low end of our previous adjusted OIBDA targets of $11 billion to $11.5 billion.

We expect capital for the year to be in the mid $6 billion range rather than the prior target of $7.2 billion. This capital outlook reflects our current subscriber trends and the good progress we have made on both our CDMA and iDEN networks over the past couple of years.

Finally, as we indicated in our press release, we were drawing our guidance related to 2008 adjusted OIBDA growth, and we expect to comment on our 2008 outlook early next year.

So, in closing I want to remind you one more time that we see our turnaround in two simple goals: improving the customer experience and simplifying the business with a particular emphasis on retaining our current customers. That's the focus today of every associate in our company, and we are committed to it.

Now, I want to thank you once again for joining us today, and I will turn the mic back to Kurt to setup the Q&A.

Kurt Fawkes

Thanks, Paul. In just a minute, we are going to go to your questions. I want to point out however before we do that to you that you may access an audio replay or webcast of our presentation this morning on www.sprint.com and should be available shortly following the conclusion this morning.

Now, we are going to open the line for your questions. And if you could please, operator, provide the instructions for our participants to submit their questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question will come from the line of David Barden with Banc of America.

David Barden - Banc of America

Hey, guys. Good morning.

Paul Saleh

Good morning.

David Barden - Banc of America

Just a couple of questions, I guess, Paul. First would be, I guess, based on our position to be conservative on the buyback, first, if you could comment whether it is the intention of Sprint to finish off the buyback by the first quarter of '08.

Second would be just on the wireline business, your very strong performance, this is the bet EBITDA, I think, since third quarter of '04. I was wondering if you could kind of talk to, is this a trend, or are there any things in that that might be non-recurring?

And then the last question I have is, at last year's Analyst Day, I think Don [Kriscase] was talking about Boost reaching, kind of mid-30% margins on the Boost product. At the time, you guys were talking about $0.10 a minute. As you move to an unlimited model where you might be seeing 1500 or 2000 minutes a month, that $50 of ARPU and your revenue per unit drops to $0.03. Could you talk about why you think this is a positive economic tradeoff? Thanks a lot.

Paul Saleh

Yeah, let me take the buyback. I think, the comment we made on the call about the buyback is, we're taking the conservative approach at this time. It’s the extended of what I will be able to say there. On the wireline side, we had our margins up 18%, we benefited from a reduction in some variable comps, I think, across the company between wireless and wireline. This represented about $90 million of benefit in the quarter. I would expect wireline margins to be more in the mid-15% range.

As far as the Boost unlimited, first of all, in the pre-paid side, your comment was correct, in terms of our objective was not only to have a positive and strong customer lifetime value, but also to get to positive margins at 25 plus percent in the pre-paid side. And we are looking again at what to do, given the current pricing environment in the pre-paid environment, and as well as the impact of the unlimited.

On the unlimited side, I must tell that we are very encouraged by what we are seeing already, and not only is our cost to acquire customer significantly below and much more consistent, even below some of our competitor's, but their expectations also is to get very high value from these customers and service segment of the market, that seems to be also growing.

I am going to turn it over Mark Angelino to see if he has anything else to add.

Mark Angelino

Yeah, thanks, Paul. I will only add in the Boost business that we're encouraged by the increase in the handset selection in their unlimited product that would lead us to believe we’re going to see some increased data, sales in that business, as well as the traveling revenues. So, although the base product is in the $50 to $55 range, we would expect upside on the ARPU in that business, and we're also encouraged by the pattern in which the customers are using the products from our busy hour perspective. So, it has less impact on the capital than one might assume. Paul?

David Barden - Banc of America

Bye guys, thanks so much.

Operator

Your next question will come from line Rick Prentiss with Raymond James.

Rick Prentiss - Raymond James

Actually, Raymond James. Good morning, guys.

Paul Saleh

Good morning.

Rick Prentiss - Raymond James

Couple of questions, one your WiMAX plans, can you update us, as far as has there been any thoughts about the plans for '08 as far as the 70 million POP build out, that kind of timing with Clearwire, as far as getting that measure agreement signed. And what we should be thinking of is, we kind of look into '08 as far as what your plans might be in the WiMAX side?

Paul Saleh

Well, $73 million was for the quarter as we mentioned. We're running slightly behind in our network equipment purchases, but we're on track for a soft launch in Baltimore, Washington and the Chicago market, as I mentioned this year. And so, this is why we said that’s the result in 2007, our expectations for CapEx and OpEx from the WiMAX would be lighter than originally anticipated. And as I look to 2008, I would say to you, that we are really continuing to work very hard to see how best to ensure commercial services are available in 2008. And we remain in discussions with Clearwire.

Rick Prentiss - Raymond James

Okay. And then, on the QChat, you mentioned that briefly in your remarks. Can you update us as far as confidence level on QChat delivering the product in a commercial environment, and what your thoughts are as far as timeframe to shift the customer base from iDEN into CDMA? What are your thoughts as far as how to move down that kind of common platform line like you are doing on the billing system, but on the network side?

Paul Saleh

Well, let me just address first the QChat. We have demonstrated those devices if you recall our Tech Summit. We are going to be going to Alpha in this quarter, very shortly and I think to Beta testing, early part of the year. And our expectation is to introduce QChat devices across multiple segments into early part of 2008. I think what we are really working on before we talk about migrating customers from iDEN to CDMA, we want to just think about it as more as reigniting the Nextel Direct Connect franchise. This is just not about items but about our Nextel Direct Connect franchise, and that will be particularly useful as we have not only the QChat on CDMA, but we will have the ability with our gateway to have customers communicate from one network to another seamlessly.

As far as our iDEN customers are concerned, we want to make sure that the customer experience as they move from one network to another in term of devices, is as seamless as possible, particularly in certain business segments, where a lot of business applications are totally integrated with their Direct Connect features.

Rick Prentiss - Raymond James

So, as we look out into the reinvigorating of the brand and getting QChat out there, should we think of it as a multi year, numerous year kind of process to move people over, just trying to gage kind of the sense of urgency that you've talked about, as far as getting people onto a common platform?

Paul Saleh

I think it would be a multiyear process. I think what you should think about it, is that we will have the Direct Connect capability on CDMA in 2008 as I mentioned. We will have some new services that were not previously available on CDMA to our iDEN customers. They would be pushed to X type of applications, total networking capability, media type of capability that are in the past were not available to our iDEN customers and would be particularly relevant to the consumer part of that business. But for our business customers, again, what I would mention is that we will have more devices on CDMA for them to choose from. We will have more devices for them to choose from on iDEN, and more critically, we will have to make sure that the applications that we have on those devices on CDMA are easily ported from one technology to another.

Rick Prentiss - Raymond James

Okay. Thanks. Good luck, guys.

Operator

Your next question will come from the line of Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs

Thank you. Good morning. A couple of questions, first on ARPU. You have always seen pricing pressure on trends with iDEN that ARPU is really coming down more than CDMA and CDMAs level. The comment in the release is that iDEN and CDMA postpaid ARPUs are now very similar. If you disaggregate this, there is obviously differences in data contribution across those two platform, so if you strip that out I think there is still about 10% premium or so for iDEN voice ARPU. And I guess the question is, would you expect a premium to still exist in that business given the functionality, or is that a metric, which you would expect to sort of trend down to CDMA level as well on the voice side?

And the second question on the guidance changes or just pulling guidance for '08, double-digit growth in EBITDA. Is this off the table because of leadership changes and you sort of need time to reassess or should we interpret this as, you reached a point where you just realized this was unachievable? Thanks.

Paul Saleh

Well then let me talk a little bit about ARPU. There are two trends in ARPU. Obviously, they are one that I mentioned during my comments why we need to focus on the customer experience and on the retention. The customers that we have spend more with us and are more valuable to us the new customers that we are attracting to the company. And they are also more loyal to us. If I look at the ARPU on the CDMA side, I would say to you that, as you said that it is flat to up actually on an ARPU basis. On the iDEN said, as data is offsetting voice decline, but on the iDEN side one of the limitation on iDEN in the past had been its lack of high-speed data capability, and that's where we have seen more voice declined that have not been able to offset it with data growth. Interestingly enough for some of the subscribers on that platform who have chosen our PowerSource devices, we have seen ARPU actually go up as a result of their usage of greater data.

Now, look at the differential between the two businesses. I think it’s a combination, actually, of the type of customers that we have. I think we have a lot of consumers on the CDMA side, and they tend to use a whole lot more minutes and more data, as you mentioned, but also we have a premium that we offer for that Direct Connect capability, and we intend to keep that premium on the CDMA side once we introduce that service to our CDMA base.

As far as the guidance is concerned, I think I had said that guidance early part of last year, I think at this stage as we go though our planning period, I think it is appropriate for us just to lift it, and with the management changes, it is also appropriate to lift that, and we will comment on what 2008 will look like some time early 2008.

Jason Armstrong - Goldman Sachs

Yes, Paul, going back to the first question, would the expectation period level out the ARPU trend pretty quickly here?

Paul Saleh

Level, just could you clarify that?

Jason Armstrong - Goldman Sachs

Well, you are still reporting declines in ARPU and not realized that’s a mix issue, but the expectation is that there still should be a premium for iDEN voice. CDMA is already a level out and may start introduction products that actually grow the data side of traditional item subscribers. It seems like we could get to a point of time pretty soon where ARPU levels is out finally?

Paul Saleh

Yeah, I think again on the iDEN side, I would say to you that what we’ll experience there is again, new customers coming in and customers who are leaving us and the differential between their ARPU. That’s basically what’s impacting that particular business, more so than the type of premium that they have for on the Direct Connect capability.

Jason Armstrong - Goldman Sachs

Okay, thanks.

Operator

Your next question will come from the line of Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley

Okay, thank you. Good morning. Paul, on the Boost Unlimited expansion, can you talk about what factors led you to choose the markets that you chose, and is it fair to expect that you might roll out another say 50 million POPs in the early part of next year? And secondly, on the laptop card, it sounds like a very strong number there. Is there any limits to the growth there in terms of the network capacity, obviously very heavy users of data there? Thank you.

Paul Saleh

Yeah. I’m going to let Mark address the Boost market expansion, and he’ll also be able to address the laptop markets.

Mark Angelino

Yeah, thanks, Paul. There was a conscious choice in rolling out incremental markets. The Boost brand is very specifically targeted to urban, ethnic, aspiring youth and that’s in the sub-50K earnings category. So in the markets that we initially rolled this out, obviously we have very high ethnic content in California and in Texas. You have the same profile in Florida. So, what we did in our second phase of this launch was to rollout the south where we think we're going to have good affinity for the product as it's been targeted for the segments that we think is most attractive. We're also expanding. When we say expanding, we’re focusing on using this as a tool for the sub-prime segment given that it's a very low CPGA product. So, we see benefits in using it in that format.

From an air card perspective, we continue to expand both the profile and the format of the device. Are you seeing PCMCIA formats? You've seen rest card formats. We rolled out and been very successful with USB formats. We've embedded our technology in partners at Dell and Sony and recently announced a new one with HP. So, we'll continue to have both the product expansion and extension, as well as, partnership extensions. And I would expect that product would continue to do well over the foreseeable future.

Simon Flannery - Morgan Stanley

My question was just on the impact on network traffic and congestions, it sounds like your network metrics are good, but are there any particular areas of times a day where laptop card as you have to limit usage or whatever?

Paul Saleh

No. Actually, we’re doing pretty well on the capital front on the usage. There is always a very, very small percentage of customers who tend to be abusers in the sense of data. But by enlarge we're able to accommodate all of that traffic with our current capital spend.

Simon Flannery - Morgan Stanley

Okay. Thank you.

Operator

Your next question will come from the line Chris Larsen with Credit Suisse.

Chris Larsen - Credit Suisse

Hi. Couple of questions, Paul, can you give us an idea of how soon the QChat handsets will be out when you think you have a full portfolio?

Secondly, the pivot partnership seems to have gone very quite, I know you mentioned you had a lot of cable VoIP customers but the pivot partnership doesn’t seem to be doing much? And then, could you give us a sense for you talked about how 40% of the losses at iDEN were in the Nextel partners' territory? Give us a sense for how far down we have to go into the customers base, to sort of work through maybe some of the customers that should not have been added to the network due to their credit rating, where are we in that process and sort of stabilizing out that churn there on the iDEN side? Thanks.

Paul Saleh

Alright, let me just start with, when we'll have QChat? We said early in next year or so, hopefully in the late first quarter or so. But we’ll have actually broad devices that we have shown you at least four to start with and we'll be introducing more devices later throughout the year.

On the pivot side, I think what you know about pivot is that we had launched that in 33 markets and they were available in about 20% of our stores. But as our focus is on simplifying the business and particularly focusing on the customer experience, we have made a decision not to expand that service in other markets or other stores. Our higher priority there is to ensure that every customer's has an efficient and superior experience within each one of their Touch Point with us. And the unfortunate part is that this product is still very complex to provision, it is integrated product with retail environment has made it very difficult to deliver in a timely and a simple process of the point of sales. So, as a result of that, we just really been, we've just stopped the additional expansion of that product in our stores. We are still very strategically aligned with the cable companies. We are working very hard with them on simplifying that offering to the marketplace.

Chris Larsen - Credit Suisse

Have you got any sense on why the cable companies have so far yet not really emphasized with other product?

Paul Saleh

I don't know exactly what and it's not a question about emphasizing it as much as I would say to you that it's a question about the complexity of provisioning that device and selling that device and I think we are looking at alternative ways of just really simplifying the offering and make it a whole lot simpler at the point of sale.

As far as the Nextel and Nextel partner or the iDEN customers, I think absolutely what you've pointed out is correct. We had a percentage of the base that was sub-prime and that should have been in a sense should not have been a candidate for that service initially. And we are working through that. I would say from the net add perspective, what is more telling actually is that we had not put much more emphasis on growth adds because of the limitation as we talked about earlier on the quality of the network, we had not put some branding effort or new products were not available, in the marketplace. And we intend on just revitalizing that franchise and expending it, it is not just about iDEN is going to be more about Nextel Direct Connect across both platforms.

Chris Larsen - Credit Suisse

Thanks a lot.

Operator

Your next question will come from the line of Jonathan Chaplin with JP Morgan.

Jonathan Chaplin - JP Morgan.

Thanks. I am wondering if you could give us just a little bit more color on what's going on with CapEx. It seems like, CapEx is coming down by about $1.2 billion, but you are still supporting all of your key initiatives. I am wondering, specific to WiMAX, you said that it can be a little bit less than expected or less than expected for this year. You are on a much slower trajectory than we expected at this point of the year. Are you going to make up for some of that in the back half of the year, what are you doing beyond the three initial soft launch markets that you've talked about? And when we think about the initial spend that you guys guided to for 2008 in WiMAX, is that on hold? Have you pushed some of the spends in 2007 to 2008? If you could just give us some more detail on that, it'd be really helpful. Thanks.

Paul Saleh

Yeah, I think the CapEx as I mentioned in my remark was due to a couple of things. In the third quarter, we drew down on inventory and we had some timing of projects, and also we are just really right now our capital spending either start to reflect basically the current trends in our subscribers but also the quality that we have been able to achieve both on the CDMA and on the iDEN side. And in addition to that we have just really basically done significant coverage already on our EVDO Rev A footprint.

As we look at WiMAX, I think this is much more as I mentioned to you, we are being a little bit behind in network equipment purchases but still on track to the soft launch in Baltimore, and Washington and Chicago as I mentioned and we have put some additional capital in the fourth quarter that is going to be to prep some sites for other locations.

Our objective again as we look at 2008, particularly for WiMAX is just to really see how best to deploy that commercial service in 2008, and as I mentioned I think we will give you more specific guidance about 2008 and more about the outlook early part of next year.

Jonathan Chaplin - JP Morgan

So, in terms of the $1.2 billion reduction in CapEx for this year, I understand a portion of the lower CapEx in the third quarter was due to drawing down on inventories but isn't that just going to unwind in the fourth quarter? I am just trying to figure out where the reduction in CapEx comes from for 2007?

Paul Saleh

Yeah, I think, certainly we said that the fourth quarter will be up sequentially but it will still be the whole capital spent for the whole year will be below the $7.2 billion that we had guided for before and we said it would be around $6.5 billion, so you can do the math. And some of that is again due to lower WiMAX spending that we had originally anticipated, but at the same time we believe that given the current trends on the subscriber and the quality of the network that we have were in good shape for the remainder of the year. And as we look at 2008 and beyond, I think in my remark if you remember, I said that our capital ought to just really be focusing on; we are going to look at what's the wireless trends, what is the emphasis on retention for our subscribers and concentrating on quality of the current footprints. And our objective is to deliver high return on invested capital and high level of capital efficiency.

Jonathan Chaplin - JP Morgan

Great thank you very much.

Operator

Your next question will come from the line of Tom Sykes with Lehman Brothers.

Tom Sykes - Lehman Brothers

Yeah, thanks for taking the question, you mentioned that you are going to launch new PowerSource and iDEN handsets and that you are going to try and ramp up the Nextel brand again. How confident are you that the lower dropped call rates that you are seeing on the iDEN network now, aren't just a function of lower customers and minutes today. Are you comfortable because more and more of the minutes are going under the CDMA platform with the PowerSource devices or do you feel like with the investments that you've made in iDEN, the network can handle more customers in minutes?

And then secondly I think; I believe in the past you cited billing issues as one of the contributors to voluntary churn in CDMA along with customer service. You've obviously addressed the customer services issue with more reps but can you update us as to what fixes you've gone to through on the billing platforms and how much further you think that needs to go before the problem is completely behind you? Thanks.

Paul Saleh

Yeah, let me address the first one. Let me just also correct, as we’re going to introduce new iDEN devices not just PowerSource devices. It's going to pure iDEN devices, which is really important, also for our base of customers. And ultimately in 2008, we will have again more Nextel Direct Connect devices on both platforms either on CDMA or on iDEN. Now, we'll say to you that we're very confident with the state of the network on iDEN. As I mentioned to you, every single market has best ever statistics from a dropped call, and quite a bit of room to spare, and this is as a result of very targeted effort to improve the quality of the network and just to enhance our capacity there.

I will say also to you, the fact we've had fewer subscribers on the network also, has been a contributor to the improved quality. So, we do have room to improve there, we have room to increase our subscriber base there. But our objective at first is to retain the customers that we have. That’s basically our most important objective near term. So, that’s what I could say there. In terms of the billing, I am going to turn it to Bob Johnson, to give you a better insight into what's going on in our care operations.

Bob Johnson

Thanks, Paul. As far as billing goes, the largest improvement we've been able to make is, through the continued migrations onto a single platform. This gives us a more simple bill and a consistent bill. The other thing I would tell you is that, it allowed us to consolidate the number of front end order entry systems at point of sale. One the largest reasons for calls into our call centers, has been because of inaccurate account setups. And by going to a single platform, it will reduce the number of errors and allow a much greater training capability at point of sale.

Tom Sykes - Lehman Brothers

Can you just sort of update us as to where you are in that process? How much of the customer base is now on the new platform, and what percentage of gross adds are coming through on the new platform?

Paul Saleh

Yeah, I think the majority of our new customers are coming in on the new platform. But, as I mentioned to you, we have already migrated an extra 1 million subscribers recently. We have 5 million coming up at the end of this year, and I said in my remark they're about 30%, so about maybe 12 or so million subscribers that will be left. A lot of them businesses, so to speak, the consumer would be behind it. So, my expectations in early part of 2008 or so or at the latest mid-year, we would be done with the subscriber migration.

Tom Sykes - Lehman Brothers

Okay, thank you very much. Paul.

Operator

Your next question will come from the line of John Hodulick with UBS.

John Hodulick - UBS

Hi, thanks. Good morning. Paul, in your new initiatives, you talked a little bit about rewarding existing customers and simplifying pricing. Are these issues that could put increasing pressure on ARPUs going forward, and then I guess if you could just comment on the general level of Sprint pricing in the market and the value proposition that you guys provide. Where do you think it needs to be that to reinvigorate growth? And then secondly, as regards to churn is the 40 basis point like-for-like increase most was the surprise for us. I mean, how do you expect that the trend over the next couple of quarters, and maybe touch on what's going on from a voluntary standpoint? What's the visibility there and when do you think we will sort of get over the hump there?

Paul Saleh

Yeah, let me just talk about the ARPU and our reward program. I might turn it to Tim Kelly in just a second, but I just wanted to say there that again, the math is very simple. The customers that we have are more valuable customers and therefore working on retaining them should benefit our top line and revenue and profitability. But, I am going to turn in just a second to Tim, and if you want to talk a little bit more broadly about where we are positioned in the market place.

Tim Kelly

Yeah. Thanks Paul. Our current pricing really matches up pretty well with where our competitors are. If you look at MRC relative to minutes, we are reversely identical. We differentiate on including 7 pm into our service pricing strategy. I think as we go forward though, and we shift our focus more towards customer retention and loyalty, we may most likely make some enhancements to our pricing strategy as we get into 2008 and better align customer pricing benefits to tenure, things of that nature. We haven't finalized what those concepts look like, but we want to make sure, the value on our rate plans comes back and provides the right incentives for our customers to remain in the franchise. So, that’s how we are thinking about it.

In the near term, we've done a number of things to better enhance the customer experience, as it relates to how we treat them in early life. How we'll be managing contracts and ETS going forward and we will be announcing some changes to that, those policies very shortly. Back to you.

Paul Saleh

Okay. As far as the churn in concerned, as you recall in the third quarter and you were right, I think on a comparable basis it was 40 basis points higher in the third quarter. Obviously, seasonality was a factor there. The macroeconomic environment was a factor there, particularly in the sub prime category of consumers. And we had also some experience in the third quarter, coming into the quarter, some problem in our customer care operations.

So, all I can tell you is that we are addressing basically all three of these things. The seasonality is the seasonality, but the macroeconomic environment hasn't necessarily improved dramatically in that couple of months. But I will say to you that we are really taking away and working very hard to identify takeaway any pain points along the customer touch points that may result into churn. And Bob and his organization are working very hard also at just really improving the customer experience from a care perspective.

And in my comment if you recall, we've put a lot of folks in our care centers to basically service our customers a whole lot, and the statistics are coming in from average handle time, and the average speed to answer are dropping significantly, and so we feel that we are on the right trend. This is going to be a very fight in the trenches, daily and we intend to bring that churn down and retain the customers that we have and deliver better results for our shareholders.

John Hodulick - UBS

Okay. Thanks.

Operator

Your next question will come from the line of Craig Moffett with Sanford Bernstein.

Craig Moffett - Sanford Bernstein

Hi, good morning Paul, and a question for you and Tim. As I think about the subprime customer base issues that you talked about, can you provide any more insight into where customers at the margins are coming in, and how much of your total base is subprime, and what's the marginal component of subprime, because I am wondering as you start to tighten credit policies at the front end, does that suggest that you will be seeing lower growth additions going forward or is this really sort of a one-time issue that you can work through within voluntary churn in the existing base?

Paul Saleh

I am going to turn it to Tim in just a second. I want to tell you that our base today on subprime is less than 25% or close to it, but to less than 25%. A majority of our growth adds now are in prime. We have tightened credit very recently. We are determined to make sure that we have the right customers in our base. And I would say also to you that we have to find a better way of serving the customers that we currently have in our base and on that front, on that basis, Tim you want to talk a little bit more on what we intend to do there?

Tim Kelly

Yeah, I will. There are probably three ways here to look at this credit policy certainly plays an important role and does have an impact on gross adds as we begin to tighten it, but you get people within really all credit classes that will perform differently and some of the insights that we are getting is the importance of channel in geography and there are certain trends that you see in certain markets, and in certain channels that bring on higher percentages of non-performing subprime. So, obviously we are working that with Mark Angelino’s team to tighten up our channel strategy, to eliminate some of the lower performing subprimes.

The balance ones that pay us, but the way the plans are set up sometimes will make it difficult, so we have to work on different alerts and tools to help provide customers early warning systems when they get into, close to being passed their limits, so that they can manage their spending and manage their usage to stay current with us. So that’s an important part as well.

And then, I think we have to continue to look at the Boost, particularly Boost Unlimited and figure out how we are going to use that appropriately as a tool to serve a part of the market for which the Boost brand is relevant. Mark talked about the marketing segment that brand appeals to certainly there is a credit component to that as well and we need to do I think a better job of leveraging Boost as a part of the overall offering strategy. So, we are triangulating, if you will around those pre dimensions to improve the performance of subprime.

Craig Moffett - Sanford Bernstein

And is there any way that sort of bind the risk to gross additions in terms of how much of the subprime base might eventually be -- the incoming subprime base might eventually be screened out?

Tim Kelly

Mark you want to handle that?

Mark Angelino

Yeah, thanks Tim. Of course you know based on the credit policy that we employ, we have a very tight controls that we can apply to the base. And the recent decision as Paul just described had backed on moderating our subprime editions and if its necessary to do more and we're prepared and we have the tools to control that.

Craig Moffett - Sanford Bernstein

Alright, thank you.

Operator

Your next question will come from the line Phil Cusick with Bear Stearns.

Phil Cusick - Bear Stearns

Hi guys, thanks for the taking the call. Two questions, one sort of shorter one. Paul, on you mentioned simplifying the business and this is the second time we have heard it. You talked about Pivot, you talked about the subprime tightened. What else specifically have you changed within the company to simplify the business? And then second of all, I hear a lot about retaining the subscriber base and investors that are emailing during the call talking about, if you want to retail and maintain our sub-base, but not about growth. And is there a point in time when we start to get back to growth here, or is that really a few quarters out as you fix the business, before we're going to get there? Thanks.

Paul Saleh

I would like to just really clarify our focus is on retention, that does not mean we're not interested in growth. We’re going to continue to attract customers. In fact, a lot of our customers, about 50 some percent of our customers come from existing account. And so, we do have a distribution strategy to make sure that we continue to attract the right kind of customers to the company.

As far the simplification of the business, obviously, while we are doing it across the board, it is not just in one area. Distribution channels, as I mentioned in my remark that are not really performing or are not consistent in their delivery of customer experience that would be one area of simplification. The type of offers that we're putting in the market or the type of devices that we are making in the market are going to be also important simplification opportunity for us. I think in terms of again, looking at everything that really interferes with providing a seamless customer experience with folks across the Broad.

We are going to try to send more people to the web to fulfill their need instead of having to be able to have to call care, for example, for certain instances for information that they could otherwise acquire on the web. Every single part of the business is just really focusing on taking away things that are not right now focusing on enhancing the customer experience. So then simplification itself is directed at better serving the customer.

Phil Cusick - Bear Stearns

Yeah, thanks.

Paul Saleh

By the way let me just add just, because you were talking about acquisition and still our gross adds were up sequentially for both business and consumer. Again our focus is going to be, we need to retain the ones that we have and we are going to incent our distribution and our associates and dealers to retain our customers.

Phil Cusick - Bear Stearns

Speaking of acquisition on the subprime, the credit tightening, can you give us an idea of what percent of your gross adds would have been wheeled out in the third quarter under the new conditions?

Paul Saleh

I'd rather not go there.

Phil Cusick - Bear Stearns

Thanks.

Operator

Your next question will come from the line of Michael Rollins with Citigroup.

Michael Rollins - Citigroup

Hi good morning.

Paul Saleh

Good morning.

Michael Rollins - Citigroup

Just a couple of questions, first, just wondering if could help us little bit more in the net add changes in the quarter between CDMA and iDEN, it looks like on the service, maybe you can give us more numbers on this, that the postpaid CDMA fell off the last two quarters with traction that you are getting in net adds? The second question I had was on the ARPU side and it seem like as you looked at a dollar degradation sequentially what are you seeing in terms of -- in addition to iDEN is there also pressure on CDMA voice. And as you mentioned before that you are going to simplify pricing plans, does that put some near term pressure on ARPU over the next six to nine months, with those simplified pricing plans well into the marketplace?

Michael Rollins - Citigroup

Thanks.

Paul Saleh

Alright. Let me just ask you to repeat your first question, Mike.

Michael Rollins - Citigroup

Sure. It was just on the net adds. If you look at the difference between postpaid CDMA and postpaid iDEN, it looks like the traction that you had in CDMA for the first two quarters of '07 fell sequentially? And I was curious if you can just give us more of the specificity to understand what's happening in the CDMA postpaid space?

Paul Saleh

Yeah. On the CDMA postpaid side, I think the issue is the churn. Its churn on the voluntarily to seasonality, and I mentioned also the fact that we had experienced some issues in customer care. Those are the driver of the churn. I would say to you on the growth adds, on CDMA we are continuing to see increases even sequentially. What was the next question, Mike?

Michael Rollins - Citigroup

And then just in terms of the ARPU, and some of the other pressures that you saw in ARPU in third quarter? I am wondering how that relates over the next 6 to 12 months as you think about simplifying pricing plans further as you mentioned in your prepared comments and whether that can put some more pressure on the ARPU side?

Paul Saleh

Yeah. I would say to you a couple of things on that front. And this third quarter, typically, also there is a seasonality in ARPU. The second quarter has high overage, that's one thing that happens and so we see a typically a little bit of softness in the third quarter, but fundamentally, I would say again, the customers that we have spend more with us. They know us better. They know the services that we offer and as a result of that retaining them, ought to be able to be a positive impact on ARPU.

I would say also to you that if we can continue to see data growth that should be able to be an important factor for us. And some of the ARPU reflects basically a mix of customers. As we look at customer either our corporate liable, they tend to have basically a lower ARPU, but they also have a lower churn. So, you have all these dynamics playing at the same time. I would say to you that where we are focusing on is the profitability of our customers and free cash flow from operations.

Michael Rollins - Citigroup

Thank you very much.

Operator

Your next question will come from the line of Ben Abramovitz with ICAP Securities.

Ben Abramovitz - ICAP Securities

Thanks for taking the call. I guess, you talked earlier about CapEx reduction is focusing on the customer as well as increased focus on some of your rate targets, your return on invested capital. Trying to get a better understanding, when you look at '08 and '09, what are some of the targets you are trying to achieve on the return on invested capital?

Paul Saleh

I will ask you just to wait a few more months, then we'll give you a whole lot more direction, particularly as we look to the future. What I can tell you now is, our CapEx for this year is coming down from the [72] than we had guided for before to [65] and with a continued focus on free cash flow and return on invested capital, even for the current year.

Ben Abramovitz - ICAP Securities

Okay. And then just to shift a little bit more to the branding and the brand equity. You are talking about reinvigorating the Nextel brand, putting more effort behind Boost Unlimited. You've got multiple brands out there, Sprint, Nextel, Boost, you are going to [One Zoom] under WiMAX. And I guess, I am trying to understand at some point is the marketing effort, just a little bit too spread out and trying to promote multiple brands instead of building a single brand equity out there to the marketplace?

And if you can give me some color on why it continues to make sense to having so many brands and incremental spending to support all these brand name out there?

Paul Saleh

Yeah. I think you should ask that question of Procter & Gamble too, but I will give Tim Kelly an opportunity just to address our branding.

Tim Kelly

Yeah. Sprint is really the anchor brand. And our branding strategy Sprint is the master. The master brand focus and that's where the lion share that the disproportionate amount of the media goes to.

Nextel, as a brand is really being folded in as a capability or products brand under Nextel Direct Connect and obviously, Nextel Direct Connect will reside both on iDEN and now on iDEN and CDMA with PowerSource and ultimately on CDMA through QChat. That will continue to live on, but as a product brand, we offer power vision, we offer obviously, Nextel Direct Connect that will symbolize our walkie-talkie capabilities, all brought to you by Sprint as the parent.

Boost is a very segmented effort targeted at different market and it's appropriate for how we're trying to position that vis-à-vis pre-paid and the unlimited market to the urban [ethic] that Mark talked about; we think that's the right place to play. We assume there will be a connection with Sprint; we are going to be embedding into a lot of non-traditional wireless devices, where we thought, it was important to have a sub-identifier, kind of like Intel uses Centrino, if you will.

So, the majority of our advertising expense and burning expense really is in support of Sprint, you are seeing the Nextel Cup evolving, the Sprint Cup next year is another representation of how we are centering around that as our core focus. But there are some product things that hang on, that we will continue to.

Paul Saleh

Yeah Ben, I know I was seditious in saying in that multiple brand but I think the reality is there is room for multiple brand and the Nextel Direct Connect franchise need to be revitalized, I think it resonates very well, you are going to see it in our stores, you are going to see it in our points of distribution and WiMAX and Zoom it was also to be able to attract a new form of customers, basically to an experience that they would not have associated with any of the traditional wireless carriers.

Ben Abramovitz - ICAP Securities

Okay. Thank you.

Operator

Your next question will come from the line of Tim Horan with CIBC

Tim Horan - CIBC

Thanks guys. Paul two questions, I'm really confused why you would be rolling out new iDEN handsets if you think QChat is going to work in trying to support the Nextel brand again. Why not just shutdown the iDEN network as fast as you possibly can. You've just gone from 45% of your sub-base to 35%. It seems to me as for the really free cash flow upside is a bit of longer-term. And then secondly could you give us a little bit more detail, everything you are saying on subscriber side here sounds really quite negative in the fourth quarter and into next year. Do you think adds going to be worst in the fourth quarter, can you talk about what you saw here in October and maybe some parameters on what you're looking forward for next year? Thanks.

Paul Saleh

Well, I said actually that we're focusing on retaining our customers and we are not giving up acquisitions, but we're being much more targeted and making sure that we are attracting the right customers to the company. So, I won’t really draw more conclusions in that and our intent is to just really retain the customers that we have while attracting new high value customers to the company. As far as iDEN is concerned, I will say to you that it's very simple. We will have that Nextel Direct Connect capability on CDMA in 2008.

There is no question about that; we will have a pretty broad portfolio of products that are going to be targeted at the entire customer base, not only iDEN customer base but the CDMA customer base. So, we will have the opportunity to offer as I mentioned to you beyond just voice, push-to-talk but other push to services. That are going to be really creating again greater affinity groups and greater social networking groups.

The reason why you need to introduce iDEN devices and we believe it's important to introduce iDEN devices we still had a very large base of business customers and other type of customers who depend on that device. And we do have a lot of as I mentioned also in my comments business applications that are integrated in those devices. Whether it is for field service applications, whether it is for public sector or other type of application that were also sometime developed by these companies.

We believe that again to -- in an effort to stabilize the base and actually retain the customers that we have. A broader portfolio of iDEN products will be important, until we have the comfort that the experience on the CDMA from a total experience, customer experience from porting somebody from one network to another is seamless and that the customer experience itself is high quality. So it has nothing to do with it as first to talk on CDMA is going to work, it has a whole lot more to do with the customer experience when somebody is going from one -- from the network itself and porting information, applications and other integrated services into the new world.

Tim Horan - CIBC

But do you think you could ultimately shutdown iDEN and port over to CDMA and maybe some rough timing on that? Thanks.

Paul Saleh

Let's just really work one step at a time and just making sure that we retain the customers who are were leaving us in the past without a clear understanding that we are committed to them. We are committed to the services they have and they are very valuable to us.

Unidentified Analyst

Thank you.

Paul Saleh

Operator will take one more question.

Operator

And this morning's final question will come from the line of David Janazzo with Merrill Lynch.

David Janazzo - Merrill Lynch.

Good morning, Paul. I will try an accounting question. Last year you had disclosed evaluating indicators of impairment for goodwill and intangible assets relating to iDEN. What factors do you evaluate and obviously things have changed this year. What could cause a change in that assessment this year?

Paul Saleh

Well, I think you are going to see it in our Q, which will be filed very shortly. I think the same thing. I think we will look at the cash flow test and we will look at the future of the business and the plan and that would be what it is going to be the basis for our analysis if there is any impairment of any of the assets that we have.

We still have a lot of customers on the platform. We do have expectations. Again, as I mentioned to you retain them so, we will have a tests that starts in the fourth quarter. And it's a cash flow test, and has other type of test. You will see that language again in the Q.

David Janazzo - Merrill Lynch

Thank you.

Kurt Fawkes

Alright. Thanks, everybody for joining us this morning. If you have any follow-on please feel free to contact us in investor relations department. Have a good day.

Operator

Ladies and gentlemen, this does conclude the Spring Nextel third quarter 2007 earnings call. You may now disconnect.

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