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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 & DistributionOrganization.

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 - SanfordBernstein

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 conferenceoperator today. At this time, I would like to welcome everyone to the SprintNextel Third Quarter 2007 Earnings Call. All lines have been placed on mute toprevent any background noise. After the speakers' remarks, there will be aquestion-and-answer session. (Operator Instructions).

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

Kurt Fawkes

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

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

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

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

Before we get started, I want to point out that weimplemented changes to our postpaid churn calculation logic in the thirdquarter. These changes which we've discussed previously primarily relate tointra account netting of gross additions and deactivations. This reduced ourreported postpaid churn by approximately 10 basis points or about a 120,000units. 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 didnot 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 youfor joining us today. Before I talk about our third quarter results, I'd liketo briefly touch on a few topics that I know are of interest to you. First andforemost is the CEO search. At this point, I can only say that the Board isactive in its process to select the most capable and qualified individual. Ofcourse, I cannot provide any details on candidates, timing or selectioncriteria, but the board is working to fill the role as expeditiously aspossible.

In this interim period, we are not standing still; we areacting decisively. We have had candid internal reviews and we are united aroundtwo key objectives: improve the customer experience at every customer touchpoints and simplify our business. I will discuss these in more detail in aminute, but I want to convey right from the start our commitment to operationaldiscipline and better execution.

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

With regard to the status of key strategic initiatives, weare 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 CDMAnetwork in early 2008.

Finally you should know that I am joined here by severalmembers of our operational lead team who will participate in the Q&Asession. They include Mark Angelino, President of our Sales and DistributionOrganization, Tim Kelly, our Chief Marketing Officer and Bob Johnson, who wasrecently appointed Chief Service Officer.

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

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

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

In addition to our marketing message, we also bolstered ourhandset lineup, recently adding very competitive PDAs and media messagingdevices that have been well received by our customers. We recently launched thenew Palm Centro and the LG, Rumor. The Centro as you know has received strongproduct reviews.

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

Last quarter we discussed some challenges we wereexperiencing in customer care, and investments being made to improveperformance in this area.

I'm pleased to report that substantial progress has beenmade and that key service metrics have restored to levels we were experiencingbefore the challenge is surfaced. Now the key takeaway here is that mostcustomer care issues are now behind us. Having said that, there is more work todo to further improve customer service and more broadly the end-to-end customerexperience.

Another area of challenge is customer retention. Churnremains 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. Ourgain in CDMA subscribers were offset by losses on iDEN. And in the wirelinebusiness, 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 theseresults. Exiting the third quarter, we had approximately 54 million totalwireless subscribers on our networks. Compared to the third quarter of lastyear, 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 flatsequentially and down 4% year-over-year. And that was mostly due to lowerwireless revenue. Wireless revenues were $8.7 billion in the third quartercompared to $8.8 billion last quarter and $9.1 billion a year ago.

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

Wireless margins were 32.4%. Wireline margins were nearly18% for the third quarter but likely will tamper in the fourth quarter, and youshould know that our margins in the quarter benefited from lower variablecompensation. CapEx of $1.2 billion in the third quarter were below priorperiods, due to draw down of inventory and timing of projects. This contributedto solid free cash flow of $1.3 billion, up from about $200 million in thesecond quarter and $800 million one year ago.

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

Compared to the year ago period, CDMA subs and ARPU are up, whileiDEN subs and ARPU are down. Wireless data revenues continue to be a brightspot for us. Data ARPU passed the $10 mark in the quarter and now accounts forabout 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 thelargest contributors to data growth. Aircards subscription grew to over $1.5million 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 someadjustments to our all in handset pricing, which reduced subsidy and benefitedmargins. Compared to the prior year however, handset pricings and discounts aremore aggressive, which is a competitive trend we're seeing across the industry.

On the wireline side, overall revenue decline reflectscontinued pressure on traditional retail voice, which marks the positivemomentum we're in IP. Wireline IP revenues increased 43% year-over-year andrepresent now 25% of our total wireline revenue base. We're continuing to makeprogress on our migration to an all IP, and I am pleased to report that IPports now exceed frame relay and ATM ports combined. Our current plan targetscompletion of the migration around the end of next year.

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

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

But simply, we curtailed acquisition on iDEN for severalquarters, while we work through the challenges. This was accomplished throughtightening credits, reducing sales incentives and pulling back on mediaspending directed at the Nextel brand. And we also limited new deviceintroductions. But that's in the past, and behind us. Today, we are veryconfident in our network performance and starting this quarter we will begin toreinvigorate the Nextel direct connect franchise.

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

At the bottom of this slide, we illustrate currentchallenges in our wireless business. Customers churn increased from 2% in thesecond quarter to 2.3% in the third quarter. The churn increase in the thirdquarter was due to seasonal influences and competitive conditions. In addition,the macroeconomic environment we experienced this summer created incrementalpressure on our subprime subscribers. We also experienced an increase in highervoluntary churn associated with challenges in customer care. Based on thesetrends, we now expect our subscriber performance in the fourth quarter to remainunder pressure.

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

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

So, we must treat our current customers as our bestcustomers, and let me tell you specifically what we are going to do. First letme start out with marketing. We will be changing our messaging and offers tobetter balance subscriber retention and acquisition, and we expect to launch aseries of programs to reward our existing customers. We plan to revise oursubprime offering, to improve the web based tools those customers use to managetheir accounts and improve their customer satisfaction. We will also continueto seek to enhance the economics of subprime customers, including potentiallyleveraging our Boost Unlimited offer for these market segments, as we make thatservice more broadly available.

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

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

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

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

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

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

Now, this consolidation willgreatly enhance our ability to consistently and effectively roll-out newproducts and better serve our customers. Now, this consolidation also shouldenable us to enhance the productivity of our sales reps and enable them tobetter manage some basic elements of care, such as upgrades.

Now in the care operations, weare working with our vendors to drive quality and consistent performance acrossour call centers.

And finally, we are working toincrease the quality of executions of our launches and new offers to reducecalls to care.

So as I said earlier, we'vedeveloped this plan after a candid and open discussion with the seniormanagement team, and we are united as a company in our commitment to takeaction and execute on this plan.

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

In 2007, Boost has experienced achallenging economic environment affecting the sub-prime segment of themarketplace, as well as an increasingly competitive environment includingunlimited calling plans from disruptive carriers.

In addition, we have limitedavailability of Boost pre-paid products in some of our largest markets as wehave 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, wereported negative net ads for pay-as-you-go, and this will likely continue inthe fourth quarter. The Boost subscribers are also changing the usage behaviorgiven our current pricing. They are using fewer cellular and walkie-talkie minuteswhich impacts ARPU.

Now, Boost is responding to thesetrends with loyalty programs, new handsets and its Boost Unlimited offering.Earlier this year, Boost launched its unlimited calling plan in California andTexas, who have added approximately 226,000 subscribers since our launch, andwe are enhancing the service. This is what we're doing. We are expanding thehandset line-up with the thin Motorola flip phone. We are launching the servicein 10 new states covering approximately 50 million parts. We are expandingdistribution 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 areintroducing wireless data services including web text messaging and picturemail services.

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

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

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

In wireless, we've been spending on capacity and coverage tosupport growing voice and data services on the CDMA network. We've expanded ourEVDO Rev A footprint to 215 million covered POPs and we plan to reach nearly230 million POPs by the end of this year. This investment was necessary tosupport our 2008 launch of Nextel Direct Connect utilizing QChat technology.For iDEN, our capital focus is on maintaining best ever calling metrics whilerebanding 800 megahertz licensees.

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

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

In our WiMAX business, we spent $73 million in the quarteras we prepaid for our upcoming soft launches in DC and Chicago, whiledeveloping size in other locations. Our full year 2007 spend on WiMAX will alsolikely be below our previous guidance.

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

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

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

In the quarter, the company purchased approximately 21million 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 capitalmarket in macroeconomic conditions.

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

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

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

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

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

So, in closing I want to remind you one more time that wesee our turnaround in two simple goals: improving the customer experience andsimplifying the business with a particular emphasis on retaining our currentcustomers. That's the focus today of every associate in our company, and we arecommitted 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 yourquestions. I want to point out however before we do that to you that you mayaccess an audio replay or webcast of our presentation this morning onwww.sprint.com and should be available shortly following the conclusion thismorning.

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

Question-and-AnswerSession

Operator

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

David Barden - Bancof America

Hey, guys. Good morning.

Paul Saleh

Good morning.

David Barden - Bancof America

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

Second would be just on the wireline business, your verystrong 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 arethere any things in that that might be non-recurring?

And then the last question I have is, at last year's AnalystDay, 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 aminute. As you move to an unlimited model where you might be seeing 1500 or2000 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 madeon the call about the buyback is, we're taking the conservative approach atthis time. It’s the extended of what I will be able to say there. On thewireline side, we had our margins up 18%, we benefited from a reduction in somevariable comps, I think, across the company between wireless and wireline. Thisrepresented about $90 million of benefit in the quarter. I would expectwireline margins to be more in the mid-15% range.

As far as the Boost unlimited, first of all, in the pre-paidside, your comment was correct, in terms of our objective was not only to havea positive and strong customer lifetime value, but also to get to positivemargins at 25 plus percent in the pre-paid side. And we are looking again atwhat 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 veryencouraged by what we are seeing already, and not only is our cost to acquirecustomer significantly below and much more consistent, even below some of ourcompetitor's, but their expectations also is to get very high value from thesecustomers 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 hasanything else to add.

Mark Angelino

Yeah, thanks, Paul. I will only add in the Boost businessthat we're encouraged by the increase in the handset selection in theirunlimited product that would lead us to believe we’re going to see someincreased 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 onthe ARPU in that business, and we're also encouraged by the pattern in whichthe customers are using the products from our busy hour perspective. So, it hasless impact on the capital than one might assume. Paul?

David Barden - Bancof America

Bye guys, thanks so much.

Operator

Your next question will come from line Rick Prentiss withRaymond 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 updateus, as far as has there been any thoughts about the plans for '08 as far as the70 million POP build out, that kind of timing with Clearwire, as far as gettingthat measure agreement signed. And what we should be thinking of is, we kind oflook 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'rerunning slightly behind in our network equipment purchases, but we're on trackfor a soft launch in Baltimore, Washington and the Chicagomarket, as I mentioned this year. And so, this is why we said that’s the resultin 2007, our expectations for CapEx and OpEx from the WiMAX would be lighterthan originally anticipated. And as I look to 2008, I would say to you, that weare really continuing to work very hard to see how best to ensure commercialservices 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 inyour remarks. Can you update us as far as confidence level on QChat deliveringthe product in a commercial environment, and what your thoughts are as far astimeframe to shift the customer base from iDEN into CDMA? What are yourthoughts as far as how to move down that kind of common platform line like youare doing on the billing system, but on the network side?

Paul Saleh

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

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

Rick Prentiss -Raymond James

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

Paul Saleh

I think it would be a multiyear process. I think what youshould think about it, is that we will have the Direct Connect capability onCDMA in 2008 as I mentioned. We will have some new services that were notpreviously available on CDMA to our iDEN customers. They would be pushed to Xtype of applications, total networking capability, media type of capabilitythat are in the past were not available to our iDEN customers and would beparticularly relevant to the consumer part of that business. But for ourbusiness customers, again, what I would mention is that we will have moredevices on CDMA for them to choose from. We will have more devices for them tochoose from on iDEN, and more critically, we will have to make sure that theapplications that we have on those devices on CDMA are easily ported from onetechnology to another.

Rick Prentiss -Raymond James

Okay. Thanks. Good luck, guys.

Operator

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

Jason Armstrong -Goldman Sachs

Thank you. Good morning. A couple of questions, first onARPU. You have always seen pricing pressure on trends with iDEN that ARPU is reallycoming down more than CDMA and CDMAs level. The comment in the release is thatiDEN 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 foriDEN voice ARPU. And I guess the question is, would you expect a premium tostill 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 voiceside?

And the second question on the guidance changes or justpulling guidance for '08, double-digit growth in EBITDA. Is this off the tablebecause of leadership changes and you sort of need time to reassess or shouldwe interpret this as, you reached a point where you just realized this wasunachievable? Thanks.

Paul Saleh

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

Now, look at the differential between the two businesses. Ithink it’s a combination, actually, of the type of customers that we have. Ithink we have a lot of consumers on the CDMA side, and they tend to use a wholelot more minutes and more data, as you mentioned, but also we have a premiumthat we offer for that Direct Connect capability, and we intend to keep thatpremium 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 thatguidance early part of last year, I think at this stage as we go though ourplanning period, I think it is appropriate for us just to lift it, and with themanagement changes, it is also appropriate to lift that, and we will comment onwhat 2008 will look like some time early 2008.

Jason Armstrong -Goldman Sachs

Yes, Paul, going back to the first question, would theexpectation 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 notrealized that’s a mix issue, but the expectation is that there still should bea premium for iDEN voice. CDMA is already a level out and may startintroduction products that actually grow the data side of traditional itemsubscribers. It seems like we could get to a point of time pretty soon whereARPU levels is out finally?

Paul Saleh

Yeah, I think again on the iDEN side, I would say to youthat what we’ll experience there is again, new customers coming in andcustomers who are leaving us and the differential between their ARPU. That’sbasically what’s impacting that particular business, more so than the type ofpremium 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 Flannerywith Morgan Stanley.

Simon Flannery -Morgan Stanley

Okay, thank you. Good morning. Paul, on the Boost Unlimitedexpansion, can you talk about what factors led you to choose the markets thatyou chose, and is it fair to expect that you might roll out another say 50 millionPOPs in the early part of next year? And secondly, on the laptop card, itsounds like a very strong number there. Is there any limits to the growth therein 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 marketexpansion, and he’ll also be able to address the laptop markets.

Mark Angelino

Yeah, thanks, Paul. There was a conscious choice in rollingout 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 themarkets that we initially rolled this out, obviously we have very high ethniccontent 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 wherewe think we're going to have good affinity for the product as it's beentargeted for the segments that we think is most attractive. We're alsoexpanding. When we say expanding, we’re focusing on using this as a tool forthe sub-prime segment given that it's a very low CPGA product. So, we seebenefits in using it in that format.

From an air card perspective, wecontinue to expand both the profile and the format of the device. Are youseeing PCMCIA formats? You've seen rest card formats. We rolled out and beenvery successful with USB formats. We've embedded our technology in partners atDell and Sony and recently announced a new one with HP. So, we'll continue tohave both the product expansion and extension, as well as, partnershipextensions. And I would expect that product would continue to do well over theforeseeable future.

Simon Flannery -Morgan Stanley

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

Paul Saleh

No. Actually, we’re doing prettywell on the capital front on the usage. There is always a very, very smallpercentage of customers who tend to be abusers in the sense of data. But byenlarge we're able to accommodate all of that traffic with our current capitalspend.

Simon Flannery -Morgan Stanley

Okay. Thank you.

Operator

Your next question will come fromthe 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 youthink you have a full portfolio?

Secondly, the pivot partnershipseems to have gone very quite, I know you mentioned you had a lot of cable VoIPcustomers 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 iDENwere in the Nextel partners' territory? Give us a sense for how far down wehave to go into the customers base, to sort of work through maybe some of thecustomers that should not have been added to the network due to their creditrating, where are we in that process and sort of stabilizing out that churnthere 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 latefirst quarter or so. But we’ll have actually broad devices that we have shownyou at least four to start with and we'll be introducing more devices laterthroughout the year.

On the pivot side, I think whatyou know about pivot is that we had launched that in 33 markets and they wereavailable in about 20% of our stores. But as our focus is on simplifying thebusiness and particularly focusing on the customer experience, we have made adecision not to expand that service in other markets or other stores. Ourhigher priority there is to ensure that every customer's has an efficient andsuperior experience within each one of their Touch Point with us. And theunfortunate part is that this product is still very complex to provision, it isintegrated product with retail environment has made it very difficult to deliverin a timely and a simple process of the point of sales. So, as a result ofthat, we just really been, we've just stopped the additional expansion of thatproduct in our stores. We are still very strategically aligned with the cablecompanies. We are working very hard with them on simplifying that offering tothe marketplace.

Chris Larsen - Credit Suisse

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

Paul Saleh

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

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

Chris Larsen - Credit Suisse

Thanks a lot.

Operator

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

Jonathan Chaplin - JP Morgan.

Thanks. I am wondering if you could give us just a littlebit more color on what's going on with CapEx. It seems like, CapEx is comingdown by about $1.2 billion, but you are still supporting all of your keyinitiatives. I am wondering, specific to WiMAX, you said that it can be a littlebit less than expected or less than expected for this year. You are on a muchslower trajectory than we expected at this point of the year. Are you going tomake up for some of that in the back half of the year, what are you doingbeyond the three initial soft launch markets that you've talked about? And whenwe think about the initial spend that you guys guided to for 2008 in WiMAX, isthat on hold? Have you pushed some of the spends in 2007 to 2008? If you couldjust 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 dueto a couple of things. In the third quarter, we drew down on inventory and wehad some timing of projects, and also we are just really right now our capitalspending either start to reflect basically the current trends in oursubscribers but also the quality that we have been able to achieve both on theCDMA and on the iDEN side. And in addition to that we have just reallybasically done significant coverage already on our EVDO Rev A footprint.

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

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

Jonathan Chaplin - JPMorgan

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

Paul Saleh

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

Jonathan Chaplin - JPMorgan

Great thank you very much.

Operator

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

Tom Sykes - LehmanBrothers

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

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

Paul Saleh

Yeah, let me address the first one. Let me just alsocorrect, as we’re going to introduce new iDEN devices not just PowerSourcedevices. It's going to pure iDEN devices, which is really important, also forour base of customers. And ultimately in 2008, we will have again more NextelDirect Connect devices on both platforms either on CDMA or on iDEN. Now, we'llsay to you that we're very confident with the state of the network on iDEN. AsI mentioned to you, every single market has best ever statistics from a droppedcall, and quite a bit of room to spare, and this is as a result of verytargeted effort to improve the quality of the network and just to enhance ourcapacity there.

I will say also to you, the fact we've had fewer subscriberson the network also, has been a contributor to the improved quality. So, we dohave 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’sbasically our most important objective near term. So, that’s what I could saythere. In terms of the billing, I am going to turn it to Bob Johnson, to giveyou a better insight into what's going on in our care operations.

Bob Johnson

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

Tom Sykes - LehmanBrothers

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

Paul Saleh

Yeah, I think the majority of our new customers are comingin on the new platform. But, as I mentioned to you, we have already migrated anextra 1 million subscribers recently. We have 5 million coming up at the end ofthis year, and I said in my remark they're about 30%, so about maybe 12 or somillion 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 orso or at the latest mid-year, we would be done with the subscriber migration.

Tom Sykes - LehmanBrothers

Okay, thank you very much. Paul.

Operator

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

John Hodulick - UBS

Hi, thanks. Good morning. Paul, in your new initiatives, youtalked a little bit about rewarding existing customers and simplifying pricing.Are these issues that could put increasing pressure on ARPUs going forward, andthen I guess if you could just comment on the general level of Sprint pricingin the market and the value proposition that you guys provide. Where do youthink it needs to be that to reinvigorate growth? And then secondly, as regardsto churn is the 40 basis point like-for-like increase most was the surprise forus. 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 thevisibility 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 rewardprogram. I might turn it to Tim Kelly in just a second, but I just wanted tosay there that again, the math is very simple. The customers that we have aremore valuable customers and therefore working on retaining them should benefitour top line and revenue and profitability. But, I am going to turn in just asecond to Tim, and if you want to talk a little bit more broadly about where weare positioned in the market place.

Tim Kelly

Yeah. Thanks Paul. Our current pricing really matches uppretty well with where our competitors are. If you look at MRC relative tominutes, we are reversely identical. We differentiate on including 7 pm intoour service pricing strategy. I think as we go forward though, and we shift ourfocus more towards customer retention and loyalty, we may most likely make someenhancements to our pricing strategy as we get into 2008 and better aligncustomer pricing benefits to tenure, things of that nature. We haven'tfinalized what those concepts look like, but we want to make sure, the value onour rate plans comes back and provides the right incentives for our customersto 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 betterenhance the customer experience, as it relates to how we treat them in earlylife. How we'll be managing contracts and ETS going forward and we will beannouncing 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 thethird quarter and you were right, I think on a comparable basis it was 40 basispoints higher in the third quarter. Obviously, seasonality was a factor there.The macroeconomic environment was a factor there, particularly in the sub primecategory 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 basicallyall three of these things. The seasonality is the seasonality, but themacroeconomic environment hasn't necessarily improved dramatically in thatcouple of months. But I will say to you that we are really taking away andworking very hard to identify takeaway any pain points along the customer touchpoints that may result into churn. And Bob and his organization are workingvery hard also at just really improving the customer experience from a careperspective.

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

John Hodulick - UBS

Okay. Thanks.

Operator

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

Craig Moffett - Sanford Bernstein

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

Paul Saleh

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

Tim Kelly

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

The balance ones that pay us, but the way the plans are setup sometimes will make it difficult, so we have to work on different alerts andtools to help provide customers early warning systems when they get into, closeto being passed their limits, so that they can manage their spending and managetheir 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 thatappropriately as a tool to serve a part of the market for which the Boost brandis relevant. Mark talked about the marketing segment that brand appeals tocertainly there is a credit component to that as well and we need to do I thinka 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 improvethe performance of subprime.

Craig Moffett - Sanford Bernstein

And is there any way that sort of bind the risk to grossadditions in terms of how much of the subprime base might eventually be -- theincoming 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 creditpolicy that we employ, we have a very tight controls that we can apply to thebase. And the recent decision as Paul just described had backed on moderatingour subprime editions and if its necessary to do more and we're prepared and wehave the tools to control that.

Craig Moffett - Sanford Bernstein

Alright, thank you.

Operator

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

Phil Cusick - BearStearns

Hi guys, thanks for the taking the call. Two questions, onesort of shorter one. Paul, on you mentioned simplifying the business and thisis the second time we have heard it. You talked about Pivot, you talked aboutthe subprime tightened. What else specifically have you changed within thecompany to simplify the business? And then second of all, I hear a lot aboutretaining the subscriber base and investors that are emailing during the calltalking about, if you want to retail and maintain our sub-base, but not aboutgrowth. 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'regoing 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 toattract customers. In fact, a lot of our customers, about 50 some percent ofour customers come from existing account. And so, we do have a distributionstrategy to make sure that we continue to attract the right kind of customersto the company.

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

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

Phil Cusick - BearStearns

Yeah, thanks.

Paul Saleh

By the way let me just add just, because you were talkingabout acquisition and still our gross adds were up sequentially for bothbusiness and consumer. Again our focus is going to be, we need to retain theones that we have and we are going to incent our distribution and ourassociates and dealers to retain our customers.

Phil Cusick - BearStearns

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

Paul Saleh

I'd rather not go there.

Phil Cusick - BearStearns

Thanks.

Operator

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

Michael Rollins -Citigroup

Hi good morning.

Paul Saleh

Good morning.

Michael Rollins -Citigroup

Just a couple of questions, first, just wondering if couldhelp us little bit more in the net add changes in the quarter between CDMA andiDEN, 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 youare getting in net adds? The second question I had was on the ARPU side and itseem like as you looked at a dollar degradation sequentially what are youseeing 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, doesthat put some near term pressure on ARPU over the next six to nine months, withthose simplified pricing plans well into the marketplace?

Michael Rollins - Citigroup

Thanks.

Paul Saleh

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

Michael Rollins - Citigroup

Sure. It was just on the netadds. If you look at the difference between postpaid CDMA and postpaid iDEN, itlooks like the traction that you had in CDMA for the first two quarters of '07fell sequentially? And I was curious if you can just give us more of thespecificity 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 customercare. 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 nextquestion, Mike?

Michael Rollins - Citigroup

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

Paul Saleh

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

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

Michael Rollins - Citigroup

Thank you very much.

Operator

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

Ben Abramovitz - ICAP Securities

Thanks for taking the call. Iguess, you talked earlier about CapEx reduction is focusing on the customer aswell as increased focus on some of your rate targets, your return on investedcapital. 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 oninvested capital?

Paul Saleh

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

Ben Abramovitz - ICAP Securities

Okay. And then just to shift alittle bit more to the branding and the brand equity. You are talking aboutreinvigorating 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 isthe marketing effort, just a little bit too spread out and trying to promotemultiple brands instead of building a single brand equity out there to themarketplace?

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

Paul Saleh

Yeah. I think you should ask thatquestion of Procter & Gamble too, but I will give Tim Kelly an opportunityjust to address our branding.

Tim Kelly

Yeah. Sprint is really the anchorbrand. And our branding strategy Sprint is the master. The master brand focusand that's where the lion share that the disproportionate amount of the mediagoes to.

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

Boost is a very segmented efforttargeted at different market and it's appropriate for how we're trying toposition 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 assumethere will be a connection with Sprint; we are going to be embedding into a lotof non-traditional wireless devices, where we thought, it was important to havea sub-identifier, kind of like Intel uses Centrino, if you will.

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

Paul Saleh

Yeah Ben, I know I was seditiousin saying in that multiple brand but I think the reality is there is room formultiple 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 aregoing to see it in our points of distribution and WiMAX and Zoom it was also tobe able to attract a new form of customers, basically to an experience thatthey would not have associated with any of the traditional wireless carriers.

Ben Abramovitz - ICAP Securities

Okay. Thank you.

Operator

Your next question will come fromthe line of Tim Horan with CIBC

Tim Horan - CIBC

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

Paul Saleh

Well, I said actually that we're focusing on retaining ourcustomers and we are not giving up acquisitions, but we're being much moretargeted and making sure that we are attracting the right customers to thecompany. So, I won’t really draw more conclusions in that and our intent is tojust really retain the customers that we have while attracting new high valuecustomers to the company. As far as iDEN is concerned, I will say to you thatit's very simple. We will have that Nextel Direct Connect capability on CDMA in2008.

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

The reason why you need to introduce iDEN devices and webelieve it's important to introduce iDEN devices we still had a very large baseof 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 businessapplications that are integrated in those devices. Whether it is for fieldservice applications, whether it is for public sector or other type ofapplication that were also sometime developed by these companies.

We believe that again to -- in an effort to stabilize thebase and actually retain the customers that we have. A broader portfolio ofiDEN products will be important, until we have the comfort that the experienceon the CDMA from a total experience, customer experience from porting somebodyfrom one network to another is seamless and that the customer experience itselfis high quality. So it has nothing to do with it as first to talk on CDMA isgoing to work, it has a whole lot more to do with the customer experience whensomebody 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 portover to CDMA and maybe some rough timing on that? Thanks.

Paul Saleh

Let's just really work one step at a time and just makingsure that we retain the customers who are were leaving us in the past without aclear understanding that we are committed to them. We are committed to theservices 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 ofDavid Janazzo with Merrill Lynch.

David Janazzo -Merrill Lynch.

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

Paul Saleh

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

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

David Janazzo - Merrill Lynch

Thank you.

Kurt Fawkes

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

Operator

Ladies and gentlemen, this doesconclude the Spring Nextel third quarter 2007 earnings call. You may nowdisconnect.

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