Sprint Nextel Corporation Q4 2007 Earnings Call Transcript

| About: Sprint Corporation (S)

Sprint Nextel Corporation (NYSE:S)

Q4 2007 Earnings Call

February 28, 2008 8:00 am ET


Kurt Fawkes - SVP IR

William Arendt - Interim CFO

Dan Hesse - President, CEO

Paget L. Alves - President Strategic Markets

John Garcia - President Nationwide Joint Venture

Bob Johnson - CSO

Kathy Walker - EVP Network Services


Rick Prentiss - Raymond James

Will Power - Robert W. Baird & Company

Phil Cusick - Bear Stearns

David Barden - Banc of America

Michael Rollins - Citigroup

Jason Armstrong - Goldman Sachs

Jonathan Chaplin - J.P. Morgan

Jonathan Atkin - RBC Capital Markets

Chris Larsen - Credit Suisse

John Hodulik - UBS

Timothy Horan - Oppenheimer & Co.


Good morning. My name is [Lori] and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sprint Nextel fourth quarter 2007 earnings conference call. (Operator Instructions)

At this time, I'd like to turn the conference over to the Senior Vice President of Investor Relations, Mr. Kurt Fawkes. Please go ahead, sir.

Kurt Fawkes - SVP IR

Good morning, everybody, and thank you for joining us on our call this morning.

For the format of our call, Bill Arendt, our interim CFO is going to review our fourth quarter financial results and then Dan Hesse, our President and CEO, will share with you his early on impressions and near-term plans and priorities. Following Dan's remarks, we'll open it up for Q&A and Paget Alves, John Garcia, Bob Johnson and Kathy Walker will also be joining us during the Q&A.

Slide 3 is our cautionary statement. Our remarks this morning may contain forward-looking statements which involve a number of risks and uncertainties that may cause our actual results to differ materially from these statements. We provide a detailed discussion of various risk factors in our SEC filings, which I strongly encourage you to review.

On Slide 4 we have our non-GAAP financial measures. Throughout our call this morning we're going to refer to several of these. Reconciliations of our non-GAAP performance and liquidity measures can be found on the attachments to our earnings release and also at the end of today's presentation, which is available on our web site at www.Sprint.com.

Slide 5 provides the normalizing net income and earnings per share for the fourth quarter. We reported a net loss from continuing operations of $29.5 billion. That's $10.36 per share. And that compares with income of $261 million or $0.09 in the year ago period. The reported net loss in the current quarter includes the non-cash charge of approximately $29.7 billion for the goodwill impairment. Virtually all of this charge is non-tax deductible.

The goodwill charge and other special items in the quarter diluted reported earnings per share by $10.42. Adjusted earnings per share before these special items and merger-related amortization costs was $0.21 per share which compares to $0.29 a year ago. Our fourth quarter adjusted EPS before amortization includes an investment gain and a state income tax benefit, and combined these are about $0.07.

We will be providing a detailed discussion of the process we went through in determining the goodwill charge in our 10K, which should be filed tomorrow, so I won't go through all the details here. But I can briefly inform you that this is the result of our annual assessment of goodwill and our conclusion that the net book value of the Wireless reporting unit exceeded what we currently estimate is its fair value, and that led to the $29.7 billion charge.

I would remind you also the goodwill impairment does not affect the net book value of other assets and liabilities on our balance sheet.

Now I'm going to turn the call over to Bill, who will discuss our fourth quarter operating trends. Bill?

William Arendt - Interim CFO

Thanks, Kurt, and good morning. I'll begin to discuss our operating performance in Slide No. 7.

In the fourth quarter, Sprint reported a loss of 683,000 post-paid subscribers as our iDEN subscriber base declined while the CDMA base was relatively unchanged. In the quarter we added 257,000 Boost unlimited subscribers and this was offset by a decline of 202,000 traditional Boost prepaid users. Wholesale net adds were approximately 500,000 for the quarter, and the Sprint affiliates added 20,000 subscribers.

During the quarter, gross adds declined by approximately 380,000 on a sequential basis. About three-quarters of this decline was in the subprime credit category.

Sales through our business channels experienced a modest seasonal decline while sales through our retail stores and indirect channels decreased significantly due to competitive market conditions, including heavy advertising and aggressive handset offers.

The post-paid churn rate in the fourth quarter was unchanged on a sequential basis at 2.3%. Post-paid churn rates were also consistent quarter-to-quarter on our two platforms. Voluntary churn was about 55% of total post-paid churn in the fourth quarter. We currently expect post-paid churn rates will increase 20 to 30 basis points in the first quarter of 2008 due to competitive pressures, typical seasonal increases in voluntary churn, and continued macroeconomic impacts on lower credit quality customers.

On Slide No. 8 we illustrate the company's revenue performance in the quarter. Total revenues of $9.85 billion were down 2% sequentially and 6% from one year ago principally due to declines from our Wireless segment.

Wireless service revenue of $7.8 billion was down 3% sequentially and 5% year-over-year due to declining post-paid ARPU and fewer post-paid subscribers. Compared to the fourth quarter of 2006, CDMA post-paid subscribers are up approximately 14% while ARPU from those customers is down slightly. The iDEN subscriber base is down nearly 25% from a year ago, and ARPU is 7% lower.

Boost prepaid revenues in the quarter were modestly ahead of the year ago period, as a 14% gain in the subscriber base was offset by a decline in ARPU.

Wireless equipment revenues were 2% higher on a sequential basis and 15% lower than a year ago.

Wireline revenues were flat sequentially and down less than 1% year-over-year. The Wireline segment continued to report strong revenue growth in IP services, offset by lower Voice and legacy data revenues. Wireline IP revenue increased 42% year-over-year and represented about 28% of our total Wireline revenues.

Our cable VoIP lines doubled versus one year ago, and we now serve over 3.3 million lines. Annualized revenue from this business is approximately $500 million.

On Slide 9, monthly post-paid ARPU was $58 in the fourth quarter compared to $59 in the third quarter and $60 one year ago. The sequential decline in ARPU is primarily the result of declining ARPU from the iDEN subscriber base and relatively stable ARPU from our CDMA subscribers.

Data revenues continue to grow at double-digit rates, but these gains are offset by declining Voice revenues.

Blended Wireless Data ARPU was $11.50 for the quarter, and Data revenues now account for about 20% of total ARPU. Leading sources of Data revenue growth are air cards, text messaging and sale of Power Vision data bundles.

The lower Voice ARPU in the fourth quarter is due to an ongoing decline in the monthly recurring charges for voice services, plus lower overage and roaming charges. The main drivers of this trend are differential between recurring charges for new subscribers versus those of our deactivating customers and second, the migration of existing customers to lower-priced plans.

These dynamics also reflect the larger share of family plans, government and enterprise accounts in the mix, and the lower contribution from subprime, which tend to have higher ARPUs. The lower overage and roaming revenues in the quarter are due to seasonal factors and moderating voice traffic within the iDEN base.

In the first quarter of 2008 we expect these trends will continue to put downward pressure on ARPU. We currently expect post-paid ARPU to be a little over $56 in the first quarter or a sequential decline of approximately $2 with about onequarter of the drop attributable to seasonal voice usage factors.

Adjusted OIBDA of $2.46 billion in the quarter was down from $2.88 billion in the third quarter as a result of the lower contribution from Wireless and increased WiMAX costs, partially offset by improvement from Wireline. Our consolidated adjusted OIBDA margin in the fourth quarter was 26.8%. Wireless margins were 28.7%. Wireline margins of 19.8% reflect scaling of our IP business and also partially benefited from a patent agreement.

Capital expenditures were $2 billion for the quarter and $6.5 billion for the full year. Wireless capital of $1.4 billion during the fourth quarter and $5 billion for the year supported our coverage build for CDMA, our EVDO expansion and a moderating level of iDEN capital. Wireline capital of $205 million in the quarter, and approximately $630 million for all of 2007 was in line with our expectations.

While we have not finalized our planning for 2008, I can tell you at this juncture that we expect core Wireless capital to be lower in the coming year when compared to 2007. Wireline capital is expected to be fairly stable in 2008.

In addition to raising required return thresholds on discretionary capital in the coming year, we are taking other steps to enhance our financial flexibility during what could be an extended period of volatility in the capital markets.

Yesterday we decided to go ahead and draw down $2.5 billion in principal amount under our revolving credit facility. This action, along with the Board's decision to suspend our common dividends, mitigates potential financing risk related to the $1.25 billion in bonds that mature in November of 2008, approximately $400 million of commercial paper and another $600 million of bonds maturing in May of 2009.

In this volatile environment, we believe it is prudent to proactively address our refinancing risk profile. We will continue to monitor market conditions and look for opportunities to fund these obligations and pay down the revolver as the year progresses.

And now we'll turn it over to Dan.

Dan Hesse - President, CEO

Thank you, Bill, and thank you for joining us so bright and early and thank you for your interest in Sprint.

I now have had two full months at the helm. To be perfectly frank, the issues we face are more difficult than what I had expected to find. I plan to give you some of my observations but I will focus primarily on what we're doing to fix our issues, of which we have many.

But there are many good things to be found at Sprint. We will have a difficult 2008 as we turn this ship around, but the long term looks promising.

The fourth quarter results speak for themselves. They're disappointing. As you know, in a recurring revenue model like ours, momentum takes time to turn in the opposite direction, whether it's positive momentum or negative momentum. So this turnaround will not happen for many quarters.

But we've acted quickly this year. We are in the process of reducing our employment numbers by 4,000, eliminating contractor positions, and eliminating 4,000 points of distribution that were not producing well, including 125 company owned stores.

We have rolled out a unified company culture which is focused, among other things, on improving the customer experience, creating a sense of urgency, and increasing accountability.

We've consolidated to one headquarters location to facilitate faster decision making, teamwork, alignment, and to get leadership closer to our operating personnel, a large percentage of whom are in Overland Park, Kansas, and we've made some leadership changes.

When I look at the company, I see great assets, including our people, our technology, our customer base, and a powerful spectrum position. I also see one strong brand which lacks relevance and a clear message. This will change.

Most who follow this company acknowledge the strength and the capabilities of our CDMA wireless network. But some don't fully recognize the benefit we get from owning a premier wireline network, which is moving closer to an allIP network every day. Our IP/MPLS platform reaches 137 countries via partnerships. We were the first carrier to receive Cisco IP VPN certification, and the first to launch end-user MPLS SLAs, which are also called service level agreements.

Our backbone network is crucial to providing the converged wireless/wireline solutions that enterprise customers demand today. It's easy to forget that the only wireless portion of a wireless network is the air between the phone and the first radio antenna it finds. The majority of the network is wireline. Our backbone enables speed and agility in managing the increasing speeds in traffic across our wireless network, which will become extremely important as data growth accelerates, a subject I will come back to later.

Another important asset that Sprint owns is the iDEN network. We believe this asset can be utilized better than it is at present. The level of customer losses we have seen on iDEN is unacceptable. Push-to-talk is a genuine differentiator. The Nextel brand is synonymous with this capability, and iDEN has set the standard for the customer experience. Push-to-talk, which is evolving into pushtoX, must be sub-second or it's second rate.

We think the button is so powerful that we're going to launch it on our CDMA platform as well as this year. Customers will get sub-second push-to-talk connections on either CDMA or on iDEN as well as between our CDMA and our iDEN networks.

We are reinvigorating Nextel Direct Connect with new handsets from Motorola and later this year we'll introduce the first ever iDEN WiFi BlackBerry, which will feature push-to-talk, a QWERTY keypad and contemporary industrial design.

And our iDEN network is performing at best-ever levels in terms of dropped calls and voice quality.

Now we need to rebuild the Sprint brand. To establish a great brand again we need to clearly articulate our advantages and we need to improve the execution of our message delivery from our distribution to our advertising, and we're working on this.

Most important to our brand is delivering a good customer experience across all touch points. We have not done this. Improving the customer experience is job one at Sprint.

We now begin every week's operations reviews with a discussion of the customer experience and a review of the specific projects we're putting in place to reduce calls to Customer Care. Not only does it cost us money to answer a call to Care, but it means a customer is not happy with something and is therefore more likely to leave us.

We are taking many actions to reduce calls to Care. Most important for our call centers and for our vendors, the top objective is first call resolution so that we don't get repeat calls. This is what customers want as well.

Of all of the metrics that govern this business, churn is by far the most important. Because of the customer experience we provided last year, churn is accelerating.

As you may know, we have performed poorly in customer surveys that were taken last year. This has hurt our brand. We have done much to improve the network and care issues which drive customer dissatisfaction, but there is much more that still needs to be done.

There is also a lag period between the time when we make improvements and when the marketplace recognizes these improvements. This can take many quarters, so it takes hard work and time to regain a reputation.

The issues we face going into 2008 are significant and, as I mentioned, more challenging than what I had expected. We've had to adjust our views and our plans for the business. Because of these stiff headwinds heading into '08, we expect to lose $1.2 million post-paid customers in the first quarter, and this is unlikely to improve in the second quarter.

And we've assigned many of our best and brightest from across the company to tackle this issue cross-functionally. We are implementing a number of new programs, like having the customer's first call routed to a rep who ensures that the customer's account - including billing options and features - are exactly what the customer wants. We're implementing other initiatives, like EChat, which allows customers to chat online live with one of our reps, and we're also improving our value proposition to our tenured customers.

Because of the churn and ARPU pressures that Bill noted, we anticipate that first quarter adjusted OIBDA will be between $1.8 and $1.9 billion.

We are taking the customer defection issue very seriously, and we are addressing it with great urgency. I will share more of our action plans with you next quarter, but again, it can take time for the results to show.

We will improve our brand position, starting with identifying and providing proof points for what the Sprint brand stands for - speed. Nextel Direct Connect subsecond connections are about speed. The largest broadband data network in the country is another proof point of Sprint's leadership in speed. But speed by itself is not enough.

Almost exactly 10 years ago when I was running AT&T Wireless, the cellular voice world was very complicated. Local calls were one price, but there were all of these other complex charges thrown in for long distance and there was also a menu of additional roaming charges.

Digital One Rate wasn't a rate plan. It was a revolution. Customers could use the capabilities of their voice device without worry and without complexity. No incremental roaming fees, no long distance charges - one rate. About the only innovation over the last 10 years is that voice buckets have gotten bigger, but finally and very recently one of today's buckets - one, the voice bucket  hit infinity. That's progress, but it's far from innovating in a way that means much to today's customer.

The long-distance charges of 1998 are now text fees, and today's version of those hated roaming charges are now the extra charges for surfing, for email, for navigation or for owning a PDA. As one of my favorite philosophers, Yogi Berra, would say, "It's deja vu all over again."

We're a step behind the consumer. We have not made wireless simple or let customers use today's highly capable wireless devices in a simple way for anything but for its most rudimentary function - voice.

Voice quality is basically a given today. We believe it's time for customers to choose a carrier based upon all what they can do with their phone. Customers tell us the mobile phone continues to grow more important in their everyday lives, and it's not just about talk.

What we in the industry call data usage, customers called - they call it text messaging, mobile email, music downloads, mobile TV, mobile navigation, and surfing the web. We have seen a significant uptake of these services in the past several months, driven by new handsets that feature data services. In fact, PDAtype devices increased in sales by a third in our fourth quarter. It clearly isn't just about talk anymore.

To give them credit, the iPhone has shown how improved usability can drive adoption and increase the willingness of customers to try new things, but customers are telling us that we have too many barriers to further data adoption.

But what if there was one rate for all of the capabilities of the 2008-era phone, just like One Rate made it simple to use all of the capabilities of the circa 1998 phone? Today's customers expect surfing, push-to-talk, email, navigation, text, and, by the way, voice as well.

Beginning tomorrow, for $99.99 a month, Simply Everything gives our new and existing customers unlimited voice calling regardless of the time of day, unlimited text, unlimited picture and video messaging, and unlimited data usage, be it web or email. It's all included. No more confusing options; no more worries. We've unlocked the true power of Sprint speed.

We're even including Nextel Direct Connect in our unlimited plan, both on our iDEN network and on our soon-to-launch CDMA service. And we're including Sprint TV, music and navigation - and these are usually premium services.

Furthering our objective to simplify our business and our offerings, the $99 plan applies to our CDMA and iDEN networks. We are also introducing family or package deals offering an incremental $5 discount for each incremental line up to five lines on the same bill. So the second line is $94.99, the third line is $89.99, et cetera.

For us, this is much more than a new rate plan. This is an invitation to our current customers and to our new customers to explore the full wireless world of data services and to do so on the nation's largest mobile broadband network.

For us, this is the beginning of a new era in wireless. Speed matters, but it's also about simplicity and usability.

For those interested in just unlimited voice, push-to-talk and text we offer the Unlimited Talk Message and Direct Connection plan for $89.99 a month on both platforms.

Simple rate plans without overages will eliminate surprises to our customers and provide a worry free environment. Not too incidentally, it will reduce calls to our Care group and simplify our sales process.

At our rates we feel we have struck a very healthy balance between fiscal responsibility and a broader reach which will grow the wireless data market.

Digital One Rate grew the size of the wireless market partially at the expense of calling cards and airport pay phones. Remember those? That was AT&T's concern 10 years ago when it launched Digital One Rate - the cannibalization of the retail wireline business.

Sprint doesn't have this worry. We hope more customers will realize their mobile phone can now be their only phone.

As we further open access to the Internet and its applications, we will continue to feature exclusive content and find ways to optimize it for mobile applications. A great example of this is our exclusive sponsorships of the NFL and of NASCAR, the two most popular sports in America.

This year, with the launch of the Sprint Cup with NASCAR, we've added a cool application on many of our EVDO phones that allows our customers, whether they are at the track, at home watching TV or anywhere on our nationwide network, the ability to get uptotheminute stats on every driver and even listen in to the live radio conversation between each driver and his crew. We have and we will launch new, equally compelling applications for NFL fans.

These new rates will be available starting tomorrow for everyone, including any of our existing customers. Existing customers can switch to these or any of our rate plans without having to extend their contract.

Now taking data to the next level, we'll be 4G or fourth generation, which is often referred to as WiMAX. I am extremely encouraged with what I have seen. Our soft launches in Baltimore, Washington and Chicago offer confidence in the performance of the technology.

I want to leave you with no doubt that our first priority is our core business, which is where our people and our capital are focused without distraction. But Sprint has an enormous asset - nearly 100 megahertz of unutilized spectrum - and the opportunity to have a three-year head start with our Zoam service, true wireless broadband with multi-megabit speed.

Back in November we announced that we were terminating our non-binding term sheet with Clearwire to jointly build a nationwide WiMAX network, but that we would continue to have discussions with them on various matters. Since then, we have had wide ranging discussions with Clearwire on potential relationships but no final agreements have been reached. It's our policy not to comment on rumours about any specific transactions, including rumours that have recently found their way into the press. I'll be prepared to talk more about our WiMAX plans at a later date.

So in conclusion, our business is not performing well right now. Because we have not provided the right customer experience, customers are leaving us. We are working aggressively to turn this around, but our financial performance will not improve overnight.

We have two overarching goals at Sprint. The first is to reduce churn. The second is to establish a clear position in the market for our brand, to clearly differentiate ourselves by demonstrating creativity and innovativeness as we revolutionize wireless to be compelling and simple for today's more sophisticated users.

With Simply Everything, we give high-value customers a reason for choosing and staying with Sprint. For the first time, your wireless device can be your only device as we bring unprecedented simplicity and utility to the Swiss army knife phones of today. And later this year we plan to introduce dual mode CDMA WiMAX devices that will turbo charge the customer experience.

Simply Everything is a stepping stone toward the fourth generation, a long way off for most wireless carriers but just around the corner for Sprint. We have a very clear view of how we intend Sprint to be different and to be relevant.

Thank you. Now we'll turn it over to Kurt.

Kurt Fawkes - SVP IR

All right. Thanks, Dan. In just a minute we're going to go to your questions. I want to point out to folks that you may access an audio replay of our call this morning, and that's at 800-642-1687 if you're dialling domestically. And if you're dialling from an international location, it is 706-645-9291. The I.D. you'll need for this is 330041741. This is also a webcast at www.Sprint.com, which should be available shortly after the conclusion of our call this morning.

So now we're going to open the line for your questions, and Lori, if you could please instruct our participants on how to submit questions.

Question-and-Answer Session


Absolutely. (Operator Instructions) We'll take our first question today from Rick Prentiss with Raymond James.

Rick Prentiss - Raymond James

Yes. Good morning, guys.

Dan, a quick question for you. You mentioned how the unlimited plan will feature push-to-talk. It'll be on both networks. You also talked about how you expect to be able to offer push-to-talk sub-second or second on CDMA. It seems like an important part of the strategy also.

Can you update us on Qtek and the availability of actually being able to do push-to-talk on CDMA and what your thoughts are as far as timeframes for that?

Dan Hesse - President, CEO

We'll let Kathy Walker answer that question.

Kathy Walker - EVP Network Services

We're excited about Qtek. We are in beta test right now with our customers and rolling out commercially in the second quarter, and that will be a range of in the 20market level through the course of 2008 and growing quickly over time.

Rick Prentiss - Raymond James

And what's the limitation factor as far as why just 20 markets in '08?

Kathy Walker - EVP Network Services

What we're looking for, Rick, is the match between the experience and the coverage between iDEN and CDMA for customers that choose to take pushtotalk and data services, and then also the match between the subsecond, wanting to make sure that we have that and that we've tested that in all of our markets.

So picking and tying them I can show that we're hitting our own sub-second and best performance benchmark before we make that available to a broader group of push-to-talk users.

Rick Prentiss - Raymond James

Makes sense, and just first word of encouragement after a tough period. This is the plan we were looking for, so glad to see you guys focusing on voice and data because I think this is what the customer really wants to see. And I think you do have a differentiated offering here to push for it, so best of luck in what's going to be probably a difficult time but I think you're headed the right way.

Dan Hesse - President, CEO

Thank you, Rick. I appreciate that.


We'll take our next question from Will Power with Robert Baird.

Will Power - Robert W. Baird & Company

Right. Thanks for taking the question.

Dan, you know, you talked about focusing on simplicity and yet you'll have, you know, still multiple brands in the marketplace and it sounds like you plan to stick with that. You have Sprint, Nextel, Boost, Virgin - you'll have Zoam down the road. I mean, I guess I'm curious how those two strategies coexist and can they really go hand in hand? Thanks.

Dan Hesse - President, CEO

Yeah, there are different segments in the market and we believe, for example, you know, Sprint will be our overarching brand, the company brand and the main brand that we go to market with.

You know, in the case of Nextel it's really becoming an application, the pushtotalk, the button, rather than, you know, really thinking about it as a company brand. There's tremendous brand equity.

So one of the things that I've been doing since coming here is taking a look at that assets the company has and, you know, it has assets in brands and names. And so that will, you know, the Nextel brand is synonymous with sub-second push-to-talk and now we use it for other kinds of push applications - push email, push pictures and what have you.

So I think that it's wise to continue to leverage that brand equity.

The Boost brand applies really more to a certain segment of the market, and we've built real brand equity around that brand for the applications and for the market that we're attracting.

And in the case of Zoam, it'll be a different kind of service, a very data-oriented service early on, and we believe, you know, we want that name also to have cache and relevance for its particular applications.

So it's a very good question. It's something that we spend time discussing here in the company and, you know, our brand strategy with respect to naming may evolve over time. But we are really focusing on building the Sprint brand as the umbrella brand for everything we do, but also having some sub brands that are very specific to applications or market segments and we believe that in many cases one plus one can equal three.

Will Power - Robert W. Baird & Company

Okay. And then my second question is: What's the current thought process on migrating from the iDEN network to a single CDMA network so you can get to one core network down the road?

Dan Hesse - President, CEO

We've evaluated this, and we believe that each network has its unique advantages and unique strengths - the iDEN network and the CDMA network  and when you run the numbers.

And so for example, you know, we've improved - as I mentioned earlier, you know, the iDEN network is performing extremely well, and we have been letting  and part of it is, quite frankly, because there are fewer customers on the network. We have incremental capacity on that network, and we believe the financials of the company will be improved by utilizing that spare capacity more effectively, especially around the very unique strengths of iDEN.

So we think that having two platforms is better than having one. There clearly is more we can do to continue to increase the - we'll call it the synergies between the two networks, whether it's being, you know, a shared, common backbone platform, sharing more cell sites. As you know, we've been integrating to one billing system. We're integrating rate plans, as I mentioned earlier, on iDEN and CDMA, so we're offering the same set of rate plans and letting the customer choose based upon, for example, where they are, what's the best coverage, what application is the most important to them.

So for customers that really like the button but they also want really fast data they might pick our QChat, which allows them to have that capability as well. For public safety - which is, you know, industrial organizations - they are extremely loyal, but they want really rugged handsets and other things that are very specific to iDEN.

So as we analyze this we believe that it's the right decision from a short-term cash flow perspective as well as from a long-term financial perspective to continue to maintain both networks and both platforms, but also to continue to look for ways of finding synergies between those two platforms.

Will Power - Robert W. Baird & Company

Okay. Great. Thanks, and good luck.

Dan Hesse - President, CEO

Thank you.


We'll take our next question from Phil Cusick with Bear Stearns.

Phil Cusick - Bear Stearns

Hi, guys. Thanks for taking my question.

I wonder if we can back up and talk about the financials for a second. The 1Q guidance is a little lower than I think most people were looking for, and I wonder if that EBITDA guidance implies a big ramp in costs on customer care, on the network, on subsidies or something like that that's going to help to do like a turnaround in customer care very quickly and that will help to sort of grow this business again by late '08 or 2009, or should we expect EBITDA softer in 2009 even than in 2008?


William Arendt - Interim CFO

Phil, this is Bill Arendt. I'll take a run at that.

As you know, we are currently looking at our '08 plan and our current view and our strategies and our operational model. As we look to Q1, I would tell you that the single biggest drop there would be, as you pointed out, is the ARPU and that is purely going to be viewed as a rate volume sort of analysis. We've got folks that are leaving us at one rate, and the folks that are coming in are at a much lower rate. That, combined with the declining sub base is really getting us here on the revenue side.

So we believe that that trend or the ARPU that you're talking about or that you're seeing here from Q4 to Q1, we don't believe that that drop will sustain itself throughout '08. We do see continued downward pressure, but we do think that it will stabilize.

From the cost standpoint, we are making investments in care to improve the customer experience, so a combination of continued improvements in care and further service revenue erosion is going to continue to put pressure. But again, at this point we don't have much visibility that we want to provide past Q1.

Phil Cusick - Bear Stearns

And can I just get a clarification? The $99 unlimited, does that include things like navigation and you mentioned NFL, so all the NFL content is included in there as well?

William Arendt - Interim CFO


Dan Hesse - President, CEO

It does.

Phil Cusick - Bear Stearns

The GPS and things like that are included?

Dan Hesse - President, CEO


Phil Cusick - Bear Stearns

Great. Thank you.


We'll take our next question from David Barden with Banc of America.

David Barden - Banc of America

Hey, guys. Good morning. Thanks for taking my question.

So I just want to talk about the price situation just a little bit. Dan, I mean, obviously you were in the USA Today a couple weeks ago. You brought them in and sort of talking about Sprint's nukes, and you've clearly - you're going to pull the price lever here as a potential differentiator. At the same time, you're still expecting, you know, 2.5 million subscriber losses in the first half of 2008.

I'm guessing, you know, I guess the first question is could you kind of elaborate a little bit on what measures of success do you need to see to be satisfied that the pricing action that you've taken is going to be enough for Sprint rather than kind of starting down a slippery slope of price, which kind of, you know, marks down the entire industry value that you're trying to recover into.

And I guess the second question would be with respect to what you've done in the base, could you elaborate a little bit more on if all the customers that you have, taking all these different packages and things, move on to this new package, what is the economic cost to Sprint of doing this kind of from a dead weight perspective?

Thank you.

Dan Hesse - President, CEO

Thanks, Dave.

Well, this clearly won't be enough to deal with the issues that we've been talking about. We really have two major objectives to try to improve our financial performance. The first and the most important is just to reduce churn, and that's across, you know, and that's improving the customer experience across all touch points for all of our customers.

What we're talking about here with this particular plan, which we really don't view as a price move - at $99.99, it's clearly going to be something, at least today, that will appeal - you know, people that are up in that $100 range are in the, you know, kind of low to mid single digits in terms of percentage of our customer base but, of course, that's an extremely important and extremely valuable part of the customer base.

And part of what we're doing here is really setting the stage for differentiating this company around our greatest strength going forward and providing simplicity differentiation, real usability.

So in terms of numbers, because I think that's what I heard from you, will this offer be enough to move the needle around the kinds of large subscriber numbers that we were talking about earlier, and the answer is no. It begins to make a difference, it begins to establish who we are, what our brand is, bring new things to the market.

Perhaps - and this is our goal, is to take a disproportionate share of the high-value customer set. So the customers that text a lot, that use data a lot, are not only higher ARPU but they have much higher customer life. They stay longer. These applications are very sticky. You know, NFL, NASCAR, navigation - the kinds of things that we've been talking about are sticky as well.

So it is not a silver bullet. It is a very important piece. We have a very long list of activities, of action plans and what have you, across the business, but one of them is the brand and new offers and new products.

Your last question I think had to do with people - perhaps customers buying down to this offer, and there will be some of that and I think the early - at the very beginning, we'll probably get more of that initially. But then what we expect to see, very much like what we saw with Digital One Rate 10 years ago, was that those users who are heavy, we'll call it data users, just like those customers who were heavy roamers 10 years ago from our competitors, begin coming our way in a significant fashion. And these are much higher than average ARPU customers, so we would expect that this will be a very accretive move over the long term.

John, did you want to add anything?

John Garcia - President Nationwide Joint Venture

Yeah. I would say the - this is John Garcia - I would position this rate plan as our attempt to reposition the game here.

We've been trying to move in this direction for quite awhile. We would argue we do data better than anybody, as evidenced by our higher ARPU for data, and customers have caught up. We've got customers doing more texting, more data usage, more email, more surfing than ever before.

And so we see this rate plan as a way to reposition the company. That it's not just about voice anymore - everyone has very good voice networks - but it's now about data.

And so although it's targeted for heavy users, we hope it gives customers a reason to stay as well, because not just heavy users use data. We've got text messaging going on like crazy, and so this gives customers a reason to believe in Sprint, that we're not just about a great voice network, we're about a great data network.

Clearly, we have some, you know, overall customer experience issues to continue to address, but there's nothing systemically wrong with the company other than improving the overall experience. And we think this rate plan begins to unlock the potential of what data can do and gives people a reason to believe in Sprint.

David Barden - Banc of America

Thanks, guys.

Dan Hesse - President, CEO

Thank you, David.


We'll take our next question from Michael Rollins with Citi.

Michael Rollins - Citigroup

Hi. Good morning. I listened to a lot of what you said, Dan, and I just had a question about the fundamental strategy.

In terms of trying to get more volume and make yourself more popular in the marketplace, how much emphasis do you need to place on quality perception versus also trying to get more attractive price points in [break in audio] really where a lot of the market is buying service today, which I would suspect is in that $40 to $60 MRC range?

And so to the extent that you're looking to stimulate volume, improve retention of subscribers, how do you look at those elements in the marketing plan, and over what time period should we expect an update on that front?


Dan Hesse - President, CEO

Thanks, Michael.

A couple things we didn't talk about on the call today, and you'll see this in some of the material we sent out, we also have new rate plans that we're launching that will apply to broader parts of the market.

We have a 450-minute talk, message and connect plan which is text and push-to-talk, if you will, and voice, unlimited - I'm sorry - 450 minutes of voice for $49.99. Another plan, with 900 minutes of voice for $69.99 that also includes unlimited push-to-talk and unlimited messaging. And for another $20 on top of either of those you can also get unlimited data.

So we are simplifying, if you will, our rate card, and these are, of course, across both CDMA and iDEN. We're simplifying the rate card to be applicable across the various segments of the market.

But in terms of the relative importance of the two, we believe that improving the perception of the company, improving the brand, what we stand for, is the more important of the two. We have, as you know, a lot of very strong competitors in this industry, so we do not intend for - we have to have competitive offers, competitive prices. But we're really focusing more on just the simplicity of the offers for our customers rather than the price points.

So, you know, don't think of this - and this gets a little bit back to David's earlier question - you know, we're not really pulling the price lever so much as we're simplifying the way we offer and the way we price, very much like buckets changed the way voice was metered years ago. We have very simple buckets or things that are unlimited.

So the quality perception - and I mentioned earlier - we've improved the network, we've improved the care experience, but there is a lag time. And we will continue to do those things, we'll continue to improve the customer experience, but it will take some time before that catches on in the marketplace.

We'll do everything we can to message it because it's very, very important, but that is the more important of the two goals or objectives that you referred to, Michael.

Michael Rollins - Citigroup

And if I could just follow up on one other question. You talked a lot about improving the customer care, both in terms of the experience and the perception of the experience, and I guess for many years I can remember Sprint focusing on this as a very important issue.

Can you share with us some benchmarks or where we are maybe relative to history, and based on your experiences in this industry, where Sprint needs to be as a best practice so we can gauge how far along this path Sprint has travelled and how much further Sprint needs to go to have an optimal customer care experience?

Bob Johnson - CSO

Hi. This is Bob Johnson. Thanks for the question.

You raise a very interesting historical view, and I think the consistency factor is at the point and the crux of your question.

What we've done is taken a very simplified approach, consistent with Dan's other simplification measures for Sprint, and focused on two areas to improve both short-term and long-term customer care and the overall customer experience. Those two areas are in the upstream reducing the reason customers need to call us in the first place, and we have several initiatives that will have both short and long-term benefits.

And then, more importantly to your question, downstream - what happens when a customer actually contacts us and talks with one of our agents? We weren't set up very well historically for consistency in that regard. So as of the fourth quarter and continuing into the execution phase of this quarter in 2008, we've done several things.

We've first of all gotten all of our vended partners who were on independent contracts onto one contract, and that has been in effect since the first quarter.

We've enlisted an industry wide standard known as COPC - Customer Operations Performance Center - to put in these standards for operating metrics and configuration of infrastructure, and give us a standardization of how we work every day across all of our centers regardless of the internal our outsourced partner that we have.

And lastly we've implemented a management reporting system, which we have never had before, to enable things like instant feedback to our agents, and the view from executives all the way down to supervisors and agents on how those transactions are occurring.

So it's really a standardization of our operations that historically wasn't in place and we now have those things in place for Q1 and going forward.

Michael Rollins - Citigroup

Thanks for sharing some of that detail with us.

Dan Hesse - President, CEO

Thank you, Mike.


For our next question, we'll go to Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs

Thanks. Good morning. Maybe just a couple questions.

So, you know, first one, Dan, how nimble are you prepared to be from here? I mean, you know, you're two months in. These are fairly significant changes. Maybe not [inaudible] with pulling the pricing lever, but including a lot more for the customer. Is this something you put in the market, give it several quarters to play out, and then you gauge success, or, you know, is this something where, if you don't see something quickly and the results continue to deteriorate, you'd be willing to act again fairly soon?

And then second question, on wireline, I know you put comments both today and in the press recently about the backbone business being integral, you know, in the context of strong performance we saw for that segment and then, you know, other steps being taken to sort of shore up the financial flexibility of this company.

Can you sort of expand your thoughts as to why now isn't a good time to sort of think about parting with that business and maybe locking into some sort of long-term resell rate with whoever you sell it to?

Dan Hesse - President, CEO

Yeah, let me take them kind of in reverse order, Jason.

Right now I'd say that the most important thing is having all hands on deck around improving the customer experience. So as I mentioned earlier, it's the first, second and third thing, quite frankly, that we review at every ops team meeting, and we're really focused on improving the operations of this company, primarily focused around the customer experience.

For those of you on the call who are familiar with the network business, I guess the best analogy I can use is, I don't know if any of you have, you know, boxes down in your basement or you've thrown all your extension cords and other cords, you know, into a box and then you go out two years later and you try to pull them apart.

When you've integrated a network, it is extremely hard to pull them apart, and the last thing we want is a big distraction. People ask me, "Boy, why did Embark's results begin to improve immediately after the separation from Sprint?" And they did, and the reason was because for the previous year everybody was focused on pulling those two networks apart and separating the companies. It is an extraordinary distraction.

So do not underestimate the issues associated with, let's say, pulling something that is so core to the business apart.

And as I mentioned earlier, it's a tremendous asset. People forget, when you talk about a wireless network, it's primarily wireline. The backbone is a core part of the network. There really are no longer, you know, kind of a long distance network and a wireless network.

I think, you know, again, to give our competitors credit, I mean, look at AT&T bought a backbone network because they knew it was crucial to their wireless business. Verizon bought a backbone network because it was crucial to their wireless business.

It's also crucial to competing in the enterprise segment, which is the most valuable segment in the market. If you don't have a wide area network capability, it's hard. And when we're focusing on data and traffic growth - because that's our core differentiator - having that flexibility and capacity in the backbone network is extremely strategic.

So that's not to say we wouldn't consider it if somebody came with, you know, an incredible number of zeros behind a check or what have you. We're always open to it. But it would be, number one, a huge distraction, and number two, for the variety of reasons I've described, it's a tremendous asset for this company, both in terms of marketing and in terms of network performance and capability.

Second, with respect to nimbleness, it is a big ship. And we'll be as nimble as we can, but it's a big ship. We could do other things in the market if we're not seeing success. So, you know, in the last two months, I think you've seen a number of things happen. You should expect to see a number of actions continue to take place to improve our operations, you know, across the board.

And I don't want to signal that, you know, we're thinking of doing additional things on, we'll call it the offer side, or that we wouldn't if we felt that was necessary. We will pay very close attention to what's going on in the marketplace, and try to be as nimble as possible.

But last point there is one of the things that we're doing - again, this is not so much about price, it's about differentiating our company. And it's also about simplifying not only our offers externally to our customers and the value they see in that.

But part of the problems that we've been describing in terms of care and customer experience is we've let our business get too complex. We're trying to make our business simpler - fewer rate plans for our sales people to need to understand, fewer reasons for our customers to call care because they have more charges and fees that they don't understand, fewer things to look up, if you will, rate plans to look up for our reps in Customer Care.

So a lot of it is about simplifying the business, so you may see additional offers out there in the marketplace that are around simplifying our business and less about price.

Jason Armstrong - Goldman Sachs

As we think about your first couple of months in the business and your priorities, is it fair to say that sort of the first step here is simplify/refresh the rate plan, get that into the market quickly, and then really turn the focus to retention and churn management efforts?

Dan Hesse - President, CEO

I would - you know, you've got them both right, but I'd put them in the opposite order. The number one goal and priority is to reduce churn. Do whatever it takes to keep those - once we have a customer on our network, they're really valuable. Once you've in essence expended the acquisition costs, the economics of keeping that customer on your network for an additional month or two months or three months are very compelling. That's job one. Simplification is job two.

Jason Armstrong - Goldman Sachs

Right. Thanks.

Dan Hesse - President, CEO

Thank you.


We'll take our next question from Jonathan Chaplin with J.P. Morgan.

Jonathan Chaplin - J.P. Morgan

[break in audio]


Mr. Chaplin, please go ahead with your question. You may need to check your mute button, sr. We're not hearing you.

Dan Hesse - President, CEO

He might be on one of our competitor's wireless devices.


We'll take our next question from Jonathan Atkin with RBC Capital Markets.

Jonathan Atkin - RBC Capital Markets

Yes, good morning. Three quick questions.

One, if you can give us kind of a read on QChat and your confidence in its ability to kind of scale once that launches presumably in April, and is that going to be nationwide or on kind of a region or market basis?

And then with Zoam, how quickly are you able to proceed with maybe an upsized deployment, assuming you are able to obtain outside funding or work out an agreement with Clearwire?

And then with respect to IT and billing conversion initiatives, can you give us an update there and how that might play into the ability to introduce new retail initiatives?

Kathy Walker - EVP Network Services

This is Kathy Walker, and I'll take the first question on QChat.

We are highly confident on the ability to scale. As I stated, right now we're in the beta testing process, which includes both our internal users as well as some friendly existing customers, and we're working on all those things to make sure that we have service levels that we understand how to scale, that we have consistency of that performance, and we intend to roll out to about 20 markets very quickly.

And there's a couple of reasons why we go to those 20 markets. First of all, the match and the coverage is very good. That makes it very simple for our sales organizations to be able to talk about the choices and options that we have for our customers who use push-to-talk capabilities.

Secondly, we have distribution that understands the project, can talk about it in a very compelling manner.

And three, we can market by market understand and make sure that all the nuances of that performance across the entire footprint is understood and responded to by the network organization.

So those Top 20 markets are very major markets and they're places where we have a very high penetration today of very loyal customers who use push-to-talk capabilities.

Dan Hesse - President, CEO

Jon, this is Dan Hesse. I'll take the second part, with respect to Zoam.

As I mentioned earlier, we've had soft launches in Baltimore, Washington and Chicago which are fundamentally with our employees and we continue the build outs in those markets as well as making preparations to launch in other cities.

I just want to emphasize, you know, we have not made final decisions with respect to, you know, Zoam or WiMAX yet, and we're not providing additional information on potential service expansion at this time.

But as you also indicated and I referenced as well, you know, we are looking at other alternatives, potential investment alternatives and what have you, and so those are being explored.

And when I have more to communicate on that subject, I will.

And I'll let Bob Johnson answer your last question.

Bob Johnson - CSO

Thanks, Jonathan. I believe you asked about the billing conversion, and that process is going well. We've converted over twothirds of our base and each successive round of conversions is going much more smoothly than the prior one.

We expect to be done in the second quarter, and it doesn't right now limit our retail offerings, which I know was part of your question. As Dan indicated, our current Simply Everything offer is going to all customers and prospects.

What it does for us is give us a more simplistic way of executing and a consistent way of executing when customers call us. The agents no longer need to know which platform they're on, which billing platform, which network. We don't have to direct different customers to different call centers, and the agents themselves don't have to use different systems, so it's really a simplification and execution benefit that we get from the billing conversion.

Jonathan Atkin - RBC Capital Markets

Thanks. And then any updated perspectives on the spectrum rebanding?

Kathy Walker - EVP Network Services

This is Kathy Walker, and the rebanding is on track. We have market by market playbooks out there in the hands of both the sales teams and the local network teams, and so all systems are green in the rebanding lane.

Jonathan Atkin - RBC Capital Markets

Thank you.


We'll take our next question from Chris Larsen with Credit Suisse.

Chris Larsen - Credit Suisse

Hi. A couple questions on the pricing plans, if I can. Dan, you mentioned something about changing the value proposition to matured subscribers. I wonder if you could talk a little bit about what your plans are there.

Secondly, the plans that you outlined in your answers to one of the questions don't seem any different than the plans you had prior other than the fact that you're now forcing the customers to buy the unlimited text. At least, you know, $40 for 50 was what you used to offer. It's now $50 for 50, but it includes the unlimited text, which was a $10 add on. If I think about that, this doesn't do anything to a customer other than say, oh, great, now I have to buy this.

You know, you talk about speed mattering and yet you're the fifth carrier to come out with a $99 plan. It doesn't seem like we're doing anything to sort of attract attention amongst new customers, and I'm just wondering if maybe you could touch on that and also on the value prop.

And then lastly, any sense from the banks whether they're going to change your investment grade rating based on the new outlook?


John Garcia - President Nationwide Joint Venture

This is John Garcia. Let me touch on the rate plans, and thanks for the clarifying question, Chris.

These are additional plans that we'll have in the marketplace that have the text and the Nextel Direct Connect features bundled in with them, and they also change our data pricing to be much more simple. We had like three variations of data pricing out there. This one brings it down to a $20 add on that has all of those data features that we listed for you.

These rate plans are in addition to the ones that we have out there already. We don't want to presume everyone wants text messaging or Nextel Direct Connect, although we're seeing the attach rates on both of those go up in a very healthy way, I think because of the handsets that we're offering as well.

Dan mentioned that we're seeing a very significant uplift in PDAs. Nobody buys a PDA without getting a full data package. Otherwise you're not really utilizing it. And so this is kind of recognition that the devices are shifting in terms of what customers are buying, the capabilities are more demanding, a place where we do very well.

And so we've rolled out these additional rate plans that give those types of customers a better deal, and at the same time we're not presuming everybody's going to want that. But this takes us toward a higher level of simplification.

We'll continue to work on things like simplicity, and when you add our speed to that we think it begins to change the argument in terms of it's not just about great voice. You have to have great voice to compete in this area, but we believe that the game is changing to where it's also about data. When you talk about data, it's usability, value, speed, and price. And so the price has been confusing. We think we've cleared that up.

And so, again, the $99 plan, ours compared to others is very different. Others have $99 unlimited voice. Ours is unlimited voice and unlimited data and a bunch of premium offers with it, so it is very different than our competitors. We want to make sure that screams out pretty loudly because our advantage is data, and we've added that into the $99 price.

We think this repositions us. It gives more relevance to the Sprint speed claim that we've been talking about. And then you can expect us to further refine the language that we're using around Sprint speed to convey more of the value that we think is there. Speed is very good. It's lifted our brand over the past several quarters, but we think that there's better language we can use to better define what it really does for you.

William Arendt - Interim CFO

Chris, this is Bill. On the rating agency question, we continue to have dialogue like most registrants with the rating agencies, but our policy is we don't want to comment on our conversations with the rating agencies. It's not in our practice, and we'd like to stay with that policy.

Chris Larsen - Credit Suisse

Is there any covenant that could be tripped or any issues as equity shareholders we need to be aware of within your facilities that if you are downgraded below investment grade that we'd have to worry about?

William Arendt - Interim CFO

There's no downgrade. A downgrade does not trip any of our covenants.

Chris Larsen - Credit Suisse

Okay. Thank you.


We'll take our next question from John Hodulik with UBS.

John Hodulik - UBS

Okay, thanks. Two quick ones.

First of all, could you give us a sense of what kind of dilution from WiMAX is in that $1.8 to $1.9 billion EBITDA guidance number for the first quarter and maybe how you expect that to trend?

And, you know, based on your comments for subscriber losses in the second quarter and some of the trends you're seeing in terms of ARPU, it would suffice to, you know, it seems, you know, reasonable to assume that those EBITDA trends are going to worsen throughout the quarter. I realize you haven't done an '08 plan, but does that make sense?

And then as a follow on to Chris' question, from a liquidity standpoint do you anticipate needing covenant relief from your banks? Forget sort of the ratings downgrade, but just from a - are there any other covenants that you might need relief from?

Kurt Fawkes - SVP IR

Thanks, John. This is Kurt Fawkes. I'm going to take the first two, and then I'll give it to Bill to talk about the covenant, the question again.

The WiMAX dilution in the first quarter will probably be similar to what we had in the fourth quarter, which was roughly $100 million or so of EBITDA dilution.

John Hodulik - UBS


Kurt Fawkes - SVP IR

In terms of your question about the second quarter, again referring back to Bill's comment, the ARPU trend in the first quarter has got a couple of, you know, seasonal factors in there. We're reducing some fees in the first quarter which will not be recurring as far as thinking about the second quarter, and then the second quarter you also get typically a meaningful seasonal benefit.

So we would not expect ARPU trajectory in the first quarter to continue in the second quarter. We expect quite a meaningful improvement. Still, probably some pressure and I'm not suggesting that ARPU in the second quarter couldn't be down from the first quarter, but probably nowhere near what you're seeing fourth quarter versus first.

John Hodulik - UBS


Kurt Fawkes - SVP IR

I'll turn it back to Bill to talk about your question on the covenants.

William Arendt - Interim CFO

Yeah. I think what I'd say is, as I've said, we're continuing our strategic review, have not prepared a full year 2000 (sic) guidance look at this point. However what I would say is that our current view indicates that we'll remain in compliance with our covenants.

John Hodulik - UBS

Okay, great. Thanks.

Kurt Fawkes - SVP IR

Thanks, John. Lori, could we take one more, please?


Absolutely. We'll take today's last question from Timothy Horan with Oppenheimer.

Timothy Horan - Oppenheimer & Co.

Thanks, guys. A couple of questions.

But Kurt, I don't think you really answered this on the EBITDA trends, you know, too, on John's question. You know, it sounds like if the subscriber count is continuing to decline that the EBITDA should probably be trending more negative in the second and third quarter, and I would think you might have some increased spending on top of that.

Then I just had two follow ups, if you don't mind.

Kurt Fawkes - SVP IR

Okay, well, Tim, let me address that real quickly. The other factor you've got beginning in the second quarter, as Dan mentioned, we've got 4,000 employees coming out of the business. That will be substantially completed by the end of the first quarter, so you will have that benefit as well going forward.

Timothy Horan - Oppenheimer & Co.

Okay, great. Then on the pricing plans here, I mean, with all due respect, if you look at - T-Mobile has a $55 plan out there for 1,000 voice minutes, 1,000 text messages, unlimited email. I agree that the Digital One rate plan, you know, was very revolutionary, but I'm really not seeing anything here that's going to change the trajectory out there much. And I know we'll kind of know in a couple of quarters but, you know, just curious on your thoughts there.

John Garcia - President Nationwide Joint Venture

Yeah. I think it's probably unfair to compare our speed to T-Mobile's speed. They're still on a fairly slow network, and their data offering is primarily just text and email and anything else you try to do is, like I said, slow.

The plans that we've built here are really kind of a improvement on the data side for what we have today, but we think really features, you know, what speed can do for you and robust applications can do for you.

So again, this is not meant to be a price play type of thing, where we're, you know, trying to beat them on price. What we're trying to do is change the conversation beyond just voice to data, and we believe the data we offer is significantly better than what T-Mobile has. So I'm not sure that's the comparison we're looking at.

Timothy Horan - Oppenheimer & Co.

Great. Just lastly, Dan, can you update us on how your compensation is structured for this year, maybe the strike price on your options that converted from Embark or, you know, kind of what your benchmarks are?

Because, you know, when you came in the stock was almost double where it's going to be now, it sounds like, where it's opened for trading, which isn't really fair to kind of hurt your compensation based on trends that were in place before you got here. Thanks.

Dan Hesse - President, CEO

Tim, I appreciate that. Do you want to come to our next Board meeting?

Timothy Horan - Oppenheimer & Co.

We'd love to.

Dan Hesse - President, CEO

Well, thanks for the question. Yes, the stock was trading at just under $14 when I joined the company, and that was, of course, before we released any results. It was just before the end of the year, but before we had released any results with respect to subscriber losses in the fourth quarter, so it has come down.

We have right now incentives in place for our short-term compensation around the first quarter only right now, and we're in the process of setting what those targets are and objectives for the second quarter, and then later we'll establish them for the rest of the year.

The equity grants for the senior team have not been made yet, and so they will be made at a later time.

I will finish up on the question that you asked John, which I think is a very good one. I am not expecting that this rate plan, which - you know, by itself is going to change the trajectory of the business. As I mentioned earlier, there are a lot of things that we need to do, a lot of blocking and tackling, a lot around the customer experience, but this is one element in a long list of things that we believe if we execute on will turn this business around over the longer term.

So we have to take lots of steps. We have to take steps, again, around the customer experience and service, but we also need to begin to identify who we are, what our brand stands for, and speak both to our existing customer base  why stay with Sprint - as well as attracting new customers.

And we believe that the new battleground going forward will be data. Traditionally in our industry it has been voice. So we're putting a flag, you know, clearly into the ground that we intend to own the data world going forward. It won't turn the ship around right away, but it begins to get us on the path.

So again, I do not want to leave you with the impression that this is a silver bullet. It's one of many things, many actions we'll take to turn the business around.

So thanks for your questions, Tim, and I will, I think, bring a transcript of your comment to the Board meeting.

Timothy Horan - Oppenheimer & Co.

Thanks. Good luck.

Dan Hesse - President, CEO

Thank you. Take care.

Kurt Fawkes - SVP IR

All right. That concludes our call this morning, and thanks everybody for joining us. And please feel free to give us a call in Investor Relations if you have any follow ups.


Thank you very much, ladies and gentlemen, for joining today's Sprint Nextel fourth quarter earnings release conference call. This concludes your conference. You may now disconnect.

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