iPCS Inc Q4 2007 Earnings Call Transcript

iPCS Inc (IPCS)

Q4 2007 Earnings Call

March 5, 2008 9:15 am ET

Executives

Michael Polyviou – Financial Dynamics Investor Relations

Tim Yager – President and Chief Executive Officer

Steb Chandor – Executive Vice President and Chief Financial Officer

Conrad Hunter – Executive Vice President and Chief Operating Officer

Analysts

Todd Rethemeier – Soleil Securities

Ana Goshko – Bank of America

Rick Prentiss – Raymond James

Jonathan Schildkraut - Jeffries & Company

Brian Pierce - RUM

Presentation

Operator

At this time I would like to welcome everyone to the iPCS fourth quarter earnings conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Michael Polyviou with Financial Dynamics. Sir, you may begin your conference.

Michael Polyviou

Thank you and good morning everyone. Thanks for joining us to discuss iPCS’ results for the quarter ended December 31, 2007 which was announced in a press release issued after yesterday’s market closed. In that same release, iPCS also announced an amended affiliation agreement with Sprint. If you did not receive copy of iPCS’ press release, one can be found on the company’s website at www.ipcswirelessinc.com. Please note that replay of this call would be made available later today. The details are set forward in the press release.

Before I turn the call over to Tim Yager, president and CEO, I have a few housekeeping matters to go over. We want to remind everyone the management discussion this morning will likely contain forward-looking statements with statements often include words like “believes”, “expects”, “plans”, “anticipates”, “intends”, “projects”, “estimates”, “may”, “might”, “would” or similar words, such following forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are made based on the management’s current expectations or beliefs, as well as assumptions made by the information currently available to management. A variety of factors could cause the actual results differ materially from those anticipated in iPCS’ forward-looking statements.

For a detailed discussion of these factors and other cautionary statements that could cause actual results to differ from those described in management discussion, please refer to iPCS’ filings with SEC particularly the “risk factors” section of iPCS’ Annual Report on Form 10-K and such sections as being updated in subsequent filings with the SEC. Investors and analysts should not place undue reliance on forward-looking statements.

In addition management will discuss certain non-GAAP financial measures, pleaser refer to the iPCS’ Press Release for a reconciliation of these non-GAAP financial measures figures derived using GAAP.

Now, I would like to turn the call over to Tim Yager, president and CEO of iPCS. Tim, please go ahead.

Tim Yager

Thank you, Michael. I would like to welcome everyone to our earnings call this morning. I am joined today by Steb Chandor, our Executive Vice President and Chief Financial Officer as well as Conrad Hunter, our Executive Vice President and Chief Operating Officer.

We have recently announced new agreement with Sprint and I will be very brief with my opening remarks, Conrad will follow some operational highlight and Steb will then provide the financial details on the quarter and full year. I will conclude the call with details about our amendments to our relationship with Sprint and what that means to our growth prospects and future outlook before we open it up to questions.

To begin for the quarter, we reported revenue of a $141.9 million compared to a $133 million in the year ago quarter. The adjusted EBITDA, excluding litigation was $25.8 representing a 54% improvement compared to the year ago fourth quarter, adjusted EBITDA is $15.8 million on the similarly adjusted basis.

Net loss for the quarter stood at $4.1 million or 24 cents per share compared to a net loss of $12 million or 72 cents per share in the prior year quarter. As we previously announced, iPCS had approximately 64,000 gross additions during the quarter compared to 74,000 for the prior year quarter.

The lower gross additions and it is still higher than desirable turn resulted in many additions for 7800 compared to net additions of 27000 last year. As we have stated a few weeks ago, when we released our subscriber numbers, the subscriber growth to the Sprint controlled and national channels continued to be weak resulting in overall subscriber growth below our expectations.

During the fourth quarter, we were able to offset some of the disappointments coming from the Sprint related issues as we continued to see strong, gross addition in our controlled distribution channels which consists of our retail stores, Sprint branded dealers and independent dealers.

Conrad will provide more detail in a minute on this but as a result of some of the issues we have taken; we have seen an improvement in sales across the 41 retail stores and 98 Sprint branded dealers. With regard to churn, it continues to be a key focus for 2008. Although early we have seen churn to date in 2008 running in level better than during the fourth quarter of last year.

However, given the economic concern, and its impact on our sub-prime subscribers as well as depending migration of our subscribers to Sprint’s new billing system, we expect churn to continue to be elevated to the first half of 2008 compared to the similar timeframe in 2007.

Our goal however is to bring churn down. We will accomplish this by improving the point of sale experience and by continuing to provide the most effective network possible to our subscribers. For the quarter, we again recorded blocks and drops below 1% with all of our switches. The direct result of the investment we have made and continue to make in our network.

We have a number of reasons to be excited about 2008 in order for us to achieve our goals; we will continue to invest in our network. During 2007, we launched 93 new cell cites bringing our total to 1,693. The new cell cites were focused in crucial markets to improve our coverage including in building coverage to capitalize in favor of roaming trends and to set us up for the Q-Chat® launch.

In 2008, we are increasing our Capital Expenditure budget to be in the range of $60 million to $65 million. To put this in perspective, our Capital Expenditure since 2006 and 2007 averaged around $40 million per year. In 2008, we plan on launching a 160 to 180 new cell cites and we intend to increase our EVDO Rev. A deployment from our current 2 ½ million covered POPs to at least 6 million covered POPs by the end of the year. This investment is aimed directly at increasing our ARPU in growing our subscriber base.

I would now like to turn the call over to Conrad to discuss our operations in more detail.

Conrad Hunter

Thanks, Tim. I am pleased to be on the call today. I have been with iPCS now for over six months and one of my first priorities was to review the way we do things and then to look for ways to improve it of what Tim, Steb and the rest of the management team had already achieved. I have also been focused on improving our relationship with our Sprint business partners so that when they leverage their program, so that was to reduce our cost and improve on our ability to better service the customer.

First and foremost, we want to maintain a high level pf passion and enthusiasm when it comes to customer focus at the frontline. I think the performance of the iPCS controlled stores Tim just spoke about is proof that we are having far reaching results based on long standing programs as well as the new ones we lost over the past few months.

The initiative to improve our distribution, their increase in our company owned stores and exclusive brand dealers begin before I joined and has been crucial to our ability to weather the decreases we have experienced in our national channels due to Sprint related issues.

During the course of the past year, we increased our focus on improving the efficiency of our distribution channels. We did this through sharing under performing stores in any locations of high density and traffic areas. The plan for 2008 is more of the same. We expect to selectively add company owned stores and exclusive branded dealers and close underperforming locations to keep our cost of acquisitions in line or maximize in our ability to improve the customers’ experience.

We have identified several company owned retail locations we will upgrade to an improved customer friendly retail merchandising format which will also have more emphasis on the small business segment. We believe this will improve our mix of prime customers on long churn overtime. We made a proactive decision to tide our credit damage to improve our mix prime to sub-prime customers and are seem positive impacts for involuntary churn as a result of this decision. We also launched a prepaid offering in all our company owned retail locations in the fourth quarter to limit our risk with marginal credit worthy customers.

We have also been focused on using our control distribution at the point of service with the goal of providing the best customer experience at the point of sale to ensure a sticky customer. So, let me take a few minutes to highlight what we are going to do to achieve this. First, we are focusing on sales leadership development within our stores. Leadership effectiveness will improve associate training and education which will drive improved productivity and the quality to reach customer interaction.

We have empowered our in-store associates to take ownership of the customers and experience they are providing from the point of acquisition to the life of the customer. Additionally it requires sale associates to set up each customer’s voicemail box properly and a tab call is made prior to the customer asking our locations. Each customer is also given an estimate of what the first bill will be so that they do not experience sticker shock. We are enhancing our sales operation in the customer support teams with the addition of resources and expanded focus on point of sales execution and customer follow up.

As a part of that, for we have made our store leaders responsible for leading and directing the service technicians and all our company owned location, we are launching specific targeted marketing programs that focus on high value markets where we have a superior network and distribution system that gives us a competitive edge. We are in the process of expanding our target audience with the use of additional media messaging such as network and cable TV and the internet. On the network, as Tim discussed, 2008 will be a transformational year for our network capacity and coverage. Although, we still have a strong network overall, we feel the need to expand and upgrade the network more aggressively to take advantage of the opportunities we have in front of us.

In 2008, we intend on focusing on certain geographies by adding cell sites to significantly improve capacity in coverage that is best in class. Additionally, we will be further deploying EVDO Rev. A in our network which we believe in the competitive advantage allowing us to differentiate our service offering in parallel with Sprint as well as the line to take advantage of the terms of recent agreement with Sprint. By improved network capacity and coverage will allow us to launch the new Direct Connect QChat® service when available and enable us to catch a larger share of the small and medium service industry business along with other traditional trade segments.

With our new capital investment, improved in-building penetration will allow us to maximize on the execution of the new Sprint simply everything pricing strategy, enable us to attract a higher revenue producing subscriber, this initial also makes us a more viable, land-to-land place and service for many in our real market. Our expanded EVDO Rev. A coverage will give us a competitive advantage in selling data cards and improving the customers’ overall experience of premium mobile broadband application. This will also assist us in the tracking switches and improving our customers’ loyalty to the Sprint brand and take full advantage of Sprint’s speed.

Our goal remains to pursue a proper growth and customer satisfaction. We feel that this initial allows us to compete more effectively. Through our plans were network build, the customer service strategy and focus on leadership, we will improve our customers’ experience leading to a higher ARPU and lower churn and improving the profitability of our business. I am very excited about the prospects for iPCS in 2008 and look forward to working with the team to deliver on our goals.

I now would like to turn the call to Steb for a look at our financials.

Steb Chandor

Thanks, Conrad. iPCS ended the year with 629,900 subscribers and a covered POPs penetration rate of approximately 5.2% representing the year over year growth of 12% in our ending subscriber base. As Tim mentioned, gross additions for the fourth quarter of ’07 were 62,800 down 14% from the 74,100 for the fourth quarter of ’06. Net additions for the quarter were 7,800 down from 27,000 in the fourth quarter of 2006 due to the increase in churn and lower gross additions.

Gross additions for the full year ‘07 came in at 275,600 just shy at the lower end of our guidelines of 280,000. However, in total it was an increase of 11% over the 2006 gross additions of 247,500.

Our churn at the 30-day deactivations for the quarter was 2.7% up from 2.4% in the year ago period and down slightly from 2.8% in the third quarter. So, the full year of 2007 churn remained flat at 2.5% compared to the full year of 2006. The increase in churn quarter compared to the prior year quarter reflects an increase involuntarily churn which increased to 1.5% in the quarter, up from 1.1% in the prior year quarter. This increase in involuntary churn relates primarily to our sub-prime subscriber base which we feel has been impacted by the weakening economic environment and credit platform changes we undertook late in 2006 as we discussed on our last earnings call.

It did tied in our credit policy late last year however we expect that involuntary churn will remain above year earlier levels for 2008 as we worked through our sub-prime subscribers. Our revenue for the quarter was a 141.9 million, compared to 133 million for the prior year quarter representing a 7% increase. Service revenue for the quarter was $91 million, an increase of 8% over the prior year quarter.

Roaming revenue which includes reseller revenue was $47 million, up from $45 million in the prior year quarter. Reseller revenue for the quarter totaled $3.7 million; this was up from $3.2 million in the prior year quarter. We ended the year with approximately 253,000 reseller subscribers in our territory, up 12% in the 227,000 at the end of ’06.

Total revenue for the year came at $538.1 million, a 9% increase over ’06 that comprised of service revenue which totaled $358.1 million, a 13% increase, in roaming and reseller revenue of a $166.3 million representing that 3% increase. Total reseller revenues for 2007 were $15.6 million compared to $11.7 million for 2006. Our proof excluding roaming for the quarter was $49 down from $50 in the third quarter. Data ARPU was $11 for the quarter, up $1 from the third quarter. Our proof to the full year of 2007 totaled $49 down from $51 for the prior year as continued softness and voice MRC was offset by increase of the data ARPU.

Overall for the year, data ARPU increased from $10 to $11. Total ARPU which includes roaming were $74 for the quarter compared $79 for the prior year quarter reflecting at the reduction in the roaming rates we receive from Sprint. For the December quarter, Cash Cost per User or CCPU excluding roaming and litigation expense was $32. Compared to the prior year quarter, CCPU was up slightly from $31. However, it was down from the $33 in the third quarter of ’07. Bad debt for the quarter was $4.7 million, down from $7.3 million in the third quarter and almost flat from the prior year quarter of $4.4 million. We are hopeful that our bad debt will continue to normalize through 2008 as we tied in credit policies to reduce our exposure to certain sub-prime credit classes.

Total bad debt for the full year of 2007 was $90 million an increase on $11 million in 2006 and as a result of the increase in the average write off per subscriber, a decrease in recovery as the percent of write offs a general deterioration in a customer aging and an increase in the number of sub-prime customers. CCPU for the year totaled $33 versus $32 for 2006 as efficiency is gained in our network and fix cost were all set by increases and bad debt and the 2007 increase in our sprint CCPU fee. Of the year-over-year increase in CCPU, approximately 2/3 of it was related to the increase in the Sprint’s CCPU fee.

Total CCPU including roaming was $47 for the quarter down from $51 for the prior year quarter and flat to the third quarter. A year-over-year decrease primarily reflects the decrease in the roaming rates we pay Sprint. Our overall roaming ratio with Sprint was 1.5 for the quarter. This is down from the 1.61 we reported in the third quarter consistent with seasonal trends but a substantial increase from the 1.31 in the prior year quarter. Our voice ratio continues to be stronger than prior year period and we feel that this is driven by the increase in the CDMA customer based in Sprint’s territory.

Our on-networks Sprint voice roaming revenue totaled $24 million which is comprised of airtime revenue and total revenue and was down from $28 million in the prior year quarter consistent with a decrease in our rate from flat 5.8 cents per minute to 4 cents and it is down from the $26 million that we recorded in the third quarter consistent with seasonal trends.

Our off-network Sprint voice roaming expense totaled $15 million for the quarter including toll charges down from $90 million in the prior year quarter and $60 million in the third quarter. Again, both of these changes were consistent with the decrease in the reciprocal roaming rate and seasonal trends. Total 2007 on-network Sprint voice roaming revenue was $92 million and total off-network Sprint voice roaming expense was $60 million.

For the quarter, time networks Sprint data revenue including that from other Sprint PCS affiliates total approximately $60 million. Off-network data expenses with Sprint totaled approximately $12 million. Please note that for the terms of our recently executed amendments with Sprint, we will no longer be receiving roaming revenue from Sprint for 3G data starting in January of this year. At the same time of course we will not be incurring roaming expense with Sprint for 3G data. 3G data roaming and revenue with Sprint totaled approximately $43.2 million and $35.9 million respectively for 2007.

As part of the amendment, Sprint has also dropped its dispute regarding the amounts paid to us for data roaming which Tim will touch on in a few minutes. Our cost for subscriber acquisition of CPGA for the December quarter was 377 down from the prior year period of 390. Total year of CPGA was 367 for 2007 and 376 in 2006. Our adjusted EBITDA for the quarter was $25.8 million after adding back 300,000 in Sprint/Nextel litigation expenses. This compares to $16.8 million on a similarly adjusted basis for the fourth quarter of ’06. Full year 2007 EBITDA was $82.9 million after adding back $2.4 million in litigation and several expenses. This is above the high-end of our guidance of $75 million and represents a 6% improvement versus 2006 despite an increase in our Sprint CCPU fees and the decrease in our reciprocal roaming rates.

The economics provided forward by our amendments with Sprint, we feel that we can achieve substantially increased scale in our business in ’08 by growing our subscriber base and closely monitoring our network and GNA cost. Although we remained concerned about that dead turn, we will continue to work with Sprint and do what is necessary to improve this metrics.

Capital expenditures for the December quarter totaled $14.2 million bringing full year Capital Expenditure to $39.7 million. This figure includes $3 million in expenditures related to a $9 million purchase order we issue to Nortel on December for additional EVDO equipment. Turning quickly to the balance sheet, we had approximately $78 million in cash at the end of the year. Our long term obligations consistent to $300 million first-lien security floating rate note and an all-in swap rate of approximately 7.5% and a $175 million secondly in secured floating rate notes with interest at 3 month liability plus 325 bases points. These notes mature on 2013 and 2014 respectively.

Now, turning the call back over to Tim, Tim?

Tim Yager

Thanks, Steb. Before I turn the call over to the question-and-answer session, I would like to discuss and highlight some of the benefits and changes resulting from our newly announced amendments to our relationship with Sprint. First, I want to emphasize that the settlement covers our service viewer rate arbitration and several other operational disputes. The online litigation remains outstanding. On February 14, oral arguments on the Illinois appeal were presented to a panel of judges. We are pleased to conclude another step in appeals process and hope to have a resolution to the appellant process sometime in 2008.

With that said, I am pleased that we have resolved our long standing arbitration dispute with Sprint. The new agreement provides several years of service relates to a back office cost and reciprocal roaming rates as well as addresses some important operational issues. The agreement allows iPCS to continue focusing and growing profitably by improving our subscriber economics and eliminates some of the future uncertainties surrounding our relationship with Sprint.

I want to note that the settlement is focused on the future and a quarter link 2007 results were not impacted. This was to say however we do believe that the financial changes are created to the company in 2008 and beyond. But you know we have been arbitrating with Sprint about our CCPU’s cost for over a year now although a substantial amount of the work has been already done, the depositions were not yet scheduled and we do not have a date schedule for the actual hearing.

But accordingly, several expensive in signing consuming pieces of the arbitration process were still on progress and this was with no certainty as to the outcome or the time needed to get to an outcome. The agreement for the new rate allows us to focus our energies and dollars on attracting new customers and retaining our existing customers. Our CCPU costs were set to be $7 and 9 cents and $6 and 81 cents for ’08 and ’09 respectively.

Under the new arrangement, our CCPU cost will be $6 and 50 cents, $6 and 15 cents, and $5 and 85 cents for 2008, 2009 and 2010 respectively. The 59 cent drop in the CCPU rate from the disputed $7 and 9 cents to the agreed upon $6 and 50 cents result in the savings of over $4 million for 2008 calculated before any subscriber growth.

The next time we have reached an agreement on is our voice travel rate. Our travel rate for 2007 was 4.03 cents per minute. Our new rate for 2008 and 2009 is 4 cents essentially flat from 2007 and our rate for 2010 is 3.8 cents. Starting in 2011, our travel rate would be equal to 90% of Sprint’s retail yield similar to the previous methodology. The third key financial component of our new deal with Sprint is our new process for dealing with 3G data travel. As you know the Sprint has been disputed in a way in which iPCS dealt with certain 3G data users that had high outbound data usage.

As part of the resolution, Sprint is dropping its dispute. Additionally the memo provides that we will no longer sell for a 3G data customers separately. We will be transitioning to billing kit effective as of the first of the year. Billing kit simply means that we will longer pay Sprint travel when one of our data customer uses their network and conversely, Sprint will no longer pay iPCS when one of their data customers is in our network. Expense data during this remark during 2007, we had travel revenue with Sprint of $43.2 million and data travel expense of $35.9 million. For net data, roaming margin with Sprint is approximately $7.2 million.

The amount what Sprint was disputing for 2007 totaled approximately $10.5 million. Although the amount formerly disputed throughout cover was $8.5 million. We believe that our efforts really last year to manage our subscribers based on data usage significantly reduced our data roaming expense for the year. As a result, our data roaming margin with Sprint was a positive. Looking back and we not actively manage our subscribers we likely would have be upside down for the year. While we certainly believe that the steps we took to manage our subscribers were permitted and appropriate, there was no certainty that we would have been able to continue to manage our subscribers in this fashion or be successful in settling the dispute with Sprint without additional litigation or arbitration.

Accordingly, the new arrangement allows both us and Sprint to move forward to our business without the added distraction from this otherwise continuing in growing dispute. We believe that the new arrangement will allow us to increase our data card sales within the iPCS territory. We were not aggressively selling data cards in 2007 because of the focus on outbound data usage. With the new arrangement, we can sell data cards without the fear of what the usage patterns of that customer maybe.

We feel the data cards are competitive advantage with Sprint and us and we will be much more focused on selling them going forward. On related note EVDO our agreement allows us for step down on our CPPU charge related to launching additionally EVDO Rev. A coverage. When iPCS covers 6 million POPs of EVDO Rev. A, we will get an additional reduction of our then current CCPU charge of 15 cents. We will recover 7 million POPs of EVDO Rev. A. We will get an additional 15 cents reduction or 30 cent total reduction from the current CCPU charge and finally when we cover 9 million POPs of EVDO Rev A we will be getting an additional 15 cent reduction for a total reduction of 4 cents. We currently have 2.5 million covered POPs and plan to have at least 6 million POPs covered with EVDO by the end of 2008.

Another item to note within the agreement is that we establish the framework of a high performance push-to-talk of the Q-Chat. It is the same branding Sprint will be using on a national basis as they will allow us that service. As Conrad discussed we plan to aggressively build our network to match the iDEN footprint and deploy EVDO Rev A, so we can capitalize on this market opportunity. We believe this will be a tremendous opportunity for us as we saw the small businesses located in our territory and compete for push-to-talk customers.

As a part of the settlement we have agreed to a limited waiver to certain confidentiality clauses of our forbearance agreement still take a migration to the new ensemble billing platform. We believe our inability to get converted to the ensemble has led to reduction of gross add as well as we put some pressure on our churn. The migration is on their way and we are currently planning to be fully migrated on summer during the first half of 2008.

We believe this conversion which was always difficult and maybe with this short term issues will eventually lead to better sales experience and improve our overall retention efforts with our existing customer base.

We will all to be working with Sprint to offer Boost prepaid. If we cannot reach agreement by the end of the second quarter in terms with Sprint to sell Boost we may begin offering our own prepaid product. We believe it is increasingly important that our prepaid offering in alliance could help to have a prepaid offering by the Christmas selling season.

They are on their changes to the agreement and I encourage you to read the 8-K filed yesterday and subsequent filing of our 10-K with the SEC for a copy of our new amendments with Sprint. We are excited to turn the page with Sprint on an operational basis and look forward to leveraging our new relationship to drive and improve the operational results for 2008 and beyond.

As related to 2008, taking into account the new arrangement with Sprint, we have issued 2008 guidance , gross additions at a range of 250,000 to 280,000 but just 95 to 105 million excluding expenses related to the Sprint Nextel Litigation and capital expenditures of 60 to 65 million.

At the midpoint these figures represent the slight decrease in gross additions year-over-year due the continuing challenges we face in the Sprint controlled channels. Tighter credit policies, continued economic weakness and the issue around the timing and implementation of our billing system migration. At the midpoint, EBITDA guides represent the year-over-year growth rate of 20%. The strong indication of our confidence to continue into this scale to possible growth…we are also forecasting and increase in our Capital expenditures as we plan to dramatically increase coverage and capacity through traditional Nextel network which we believe would result to better customer experience. Initially we intend to an increasing EVDO Rev A, roll out to take advantage of data card sales, QChat® and the CCPU step-down as outlined in our amended agreements with Sprint.

We are very excited about our prospects to 2008. We look forward to updating you through the year.

Lastly, I want to make a couple of brief comments about our current quarter. We expect the gross additions to be down significantly from the year ago level as a result of our tight credit policies and other issues we have discussed on the call, but this reduction gross additions and the benefit of our new arrangement with Sprint, we expect our first quarter EBITDA will be up significantly from the year earlier quarter consistent with our expectations and full year guidance. And now, I would like to turn the call over to the operator for any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is coming from Todd Rethemeier. You may go ahead.

Todd Rethemeier – Soleil Securities

I have a couple of questions for you, first this new 4 cent roaming rate on voice, is that across your entire territory or are you…do you still have the 10 cent rate in some of those markets?

Tim Yager

Ah yes. This is Tim, that is a good clarification, we do still have the 10 cent markets in some of the rights and territories through the previous churns which is I believe through t 2011 where when we reach 7 cent penetration.

Todd Rethemeier – Soleil Securities

And then the second question, any idea what the timing of launching QChat® is? I mean, are there handsets ready for you to launch that sometimes this year or…?

Tim Yager

Yes. I have worked… we are not going to provide specific guidance on that; I am not going to talk about the handsets. I think that is a better question to address to Sprint, but it relates that we are deploying the capital to be in a situation where our coverage in certain key markets at the minimum matches the iDEN’s footprint and soon it will on a position to launch QChat® when Sprint is ready to launch it.

Todd Rethemeier – Soleil Securities

Okay. And then the last question, your number seemed to be remarkably better than Sprint, although maybe that is not saying a whole lot. What exactly are you guys doing differently in the market place and obviously Sprint controls the advertising and some of the national channels, but what are you guys doing differently that you are able to still deliver positive growth for your believing customers?

Tim Yager

Well a couple of things, first of all I think it is important though the Sprint is then still growing, their CDMA customer base and most of their sub locks should have been on the Nextel side of business, but then it relates specifically tied, I think that is ultimately the advantage of the affiliation program. We are focused… we have the advantages of the national brand with the added advantage of a small market focus. We are focused exclusively on the market, the Grand Rapids and Bloomfield Illinois and Fort Winds Indiana to the world. While Sprint is not focused on those but Verizon and Cingular and some of our big competitors are still focused on some of those territories so I think the same story that always been through the affiliates of the big national brand with the smaller market focus is the other key component there.

Todd Rethemeier – Soleil Securities

Okay, great, thanks. Thank you Todd, I appreciate it.

Operator

Thank you. Our next question is coming from Ana Goshko. Please go ahead and state your firm.

Tim Yager

Hi Ana.

Ana Goshko – Bank of America

Hi. I have few interesting questions. One, we would be interested to get color on what the catalyst was around the settlements and the agreements that you now have, it just came like there was dispute after dispute after dispute that was dragging on, dragging on, all of sudden we got a rush of announcement, did something change suddenly there in the way you have been interacting or dealing with them on this issues?

Tim Yager

Oh! Yes, this is Tim. We have been working for quite a while with Sprint to try to get this arbitration disputes resolved that I think we have said for at least the last one or two Earnings calls that we would rather negotiate than arbitrate? And it takes a long time I think to get things done sometimes but we are pleased with the announcements that we have, we think it sets us up well not only for 2008, but certainly 2009 and 2010 as we have really visibility to our longer term prospects for the business for the first time in the couple of years. We are very excited to have it done and the process to get to this point will soon be forgotten as we focus on the business at hand.

Ana Goshko – Bank of America

Okay. In a very new top management at Sprint as you well know, had you anyway attribute being able to reach this settlement or there is a change of tone in the way that you are interacting with Sprint now as result potentially of the change of management that you think will also kind of color and maybe make relation going forward differently what they have done for the past couple of year?

Tim Yager

Yes. As it relates to these fields specifically as I have said we have been working on it for an extended period of time frankly before the management changes at Sprint and certainly and obviously nothing to got derailed with the management changes. I cannot comment specifically on how that may or may not change our overall interaction with Sprint. I will tell you that as an affiliate we where we do not have any inside information as to how the new management at Sprint is going to focus on things but what we hear about their focus on the customer and the things that they are doing to really become much more customer focused, there are certainly things that Conrad that has been focusing on an iPCS featuring the firm in August so for us it has been a reaffirmation of the efforts that we have been already taken and we are hopeful given some time that they will be very successful in repositioning Sprint and be as successful going forward.

Ana Goshko – Bank of America

The second question is on the QChat® agreement on the roll-out that you came to. Now in all of your territories both and one part of territory because of the Delaware court ruling and then the other part under the current stay in Illinois. Have they…Sprint still has separate Nextel stores so is the agreement going forward that the QChat® phones will be rolled-out within the iPCS/Sprint stores and effectively you will be competing against the Nextel Traditional iDEN push to talk which will still be sold in the separate Nextel stores?

Tim Yager

Yes Ana I think it is…we have done nothing to change the branding relationship between us and Sprint. Our store is still the Sprint stores and their stores are still the Nextel stores. The QChat® product is a CDMA product and so we will be offering that product in our territory and we will be competing fairly and vigorously with Nextel in our territory for the push-to-talk customers.

Ana Goshko – Bank of America

Okay. The nest question is just on billing system, when do you think will it be completed and what should we expect in a both timing liaison on impact and on the impact, so what are the risks and should we expect as by concern and expect in our third-quarter as there might be issues with the migration and then also just an update on the national retailers, have you been able to sell it all in retailers like Radio Shack and once the Ensemble comes on in your territories will that sort of kick back in?

Tim Yager

A lot of questions Ana, as it relate to the Ensemble billing platform we feel the process is underway right now with Sprint. The good news is that they converted…I do not know how many millions of customers but a lot of millions of customers so they should have the process down pretty well at this point. So we certainly hope and expect that the impact to our customers will be minimal. I think frankly one of the biggest obstacles we have is training our own associates to be ready to utilize in this system but Conrad’s team is focused on that and working towards that end,

As it relates to the national parties, we certainly…I think find us to the question correctly on the national side and we felt that the lack of conversion on Ensemble certainly impacted us pretty significantly in the fourth quarter so we are obviously hopeful that as we get our customers migrated to the Ensemble platform that we will be more successful again in selling in the national boxes.

Ana Goshko – Bank of America

Okay. Thank you. Oh maybe one more. So on ARPU in the quarter you know ARPU is down a dollar but the data ARPU was up a dollar so it is a different churn voice and because I know there is also small other back end your ARPU circulation . So one of the sense is of whether you still think ARPU pressure on the voice side, is that still from family plan, and what is the overall outlook for ARPU?

Steb Chandor

Yes. As it relates to the fourth quarter Ana, this is Steb I mean we continued the ARPU pressure primarily on the MRC side family plans have something to do with that as well as a slight pick up on the data side. So historically we have seen that, we continuously see that in the fourth quarter, we continue to expect to see that overtime. We continue to work and Conrad’s talk about some of the initiatives we put in place as well as the capital expenditures that we are going to expand in our way to really help drive the ARPU as well as the customer retention and gross additions.

Ana Goshko – Bank of America

Okay. Well thank you very much and congratulations on the announcements to look like…I am sure you are happy to have that past you…in the past. Thanks.

Tim Yager

We are thank you Ana.

Operator

Thank you. Our next question is coming from Rick Prentiss - Raymond James.

Rick Prentiss - Raymond James

Thanks. Good morning guys.

Tim Yager

Good morning, Rick.

Rick Prentiss - Raymond James

Yes. I will echo that I am glad to see the agreement, it has been a long time coming…we do miss you down here in Florida with me and the 600 investors but I know you guys got a lot of stuff going on. I want to ask some questions on the Rev A side. If you think about that on a per covered POP basis going from 12 ½ to 6 million, should we think about the 20 and 25 million incremental CapEx ‘07 to ‘08 against the 3 ½ to say, okay maybe it is costing you 5 to 10 bucks a POP that kind of do the upgrade, is that the way you think about this?

Steb Chandor

Yes. Just to make sure, Rick, this is Steb, the numbers are right. We are currently covering about 2 ½ million POPs and we will be moving up to six by the end of the year. We still think the general guidance of about $4 to $6 per covered POP makes sense as we move in 2008 EVDO roll out.

Rick Prentiss - Raymond James

And then you said that when you get to at least 6 million any thought getting down or up to the 9 million, obviously a pretty significant CCPU if you can, is that some we should think of more in the 2009 time frame?

Tim Yager

You know Rick, this is Tim. I think we are focused on getting into the 6 million and obviously the next step up to 7 million is a pretty small increment so obviously we hope to get to the 7 million still rather later and I think as we think about that jump from 7 to 9 and that is a little bit bigger jump on our POP start to get a little sparsely located and so it gets a little tough to get to the 9 but obviously 6 by the end of the year and I think we will get to 7 pretty soon thereafter and the 9 I think a lot will depend in the success of our QChat® roll out, the success of our data card sales and some of those things to get from the 7 to the 9, but obviously to your point we have a pretty good economic concern to get there.

Rick Prentiss - Raymond James

You also spent several phrases and you are talking about in-building coverage. We have Sprint down here in our conferences. We are going to see like that really seems to be one of the issues with the QChat®, it is not Q-Chat® per se but the iDEN and CDMA coverage comparisons and that CDMA maybe did not penetrate buildings as well or did have as much cell sites but then with the higher frequency, is that where a lot of this CapEx will be focused as just getting in-building penetration improved so that iDEN in-building applications can move over the CDMA?

Tim Yager

I cannot speak to what their iDEN, thought process is or the CDMA I mean clearly we want…we are putting an increased focus in getting in-building penetration. A lot of it has to do with the customers’ expectations at this point. We are starting to see more and more landline replacements and I think with Sprint’s new ‘simply everything plan’ out there you are going to see even more landline replacements and to really be successful on that part and we have to have the in-building penetration and then I think when you are later on the QChat® and the target markets there of small businesses and some of hose kinds of service industries. It is important as well to have the in-building penetration.

So certainly we want the best in class services in our key territories and that includes in-building coverage.

Rick Prentiss - Raymond James

Okay, and then what really is the question, I guess you are comfortable that the QChat® is working that Rev A, is working. There have been a lot of buzz in the market place about how good it was or how soon it would be. Do you feel pretty good about the…have you seen QChat® work? Have you seen the Rev A QChat® combination work?

Tim Yager

I will speak to the Rev A piece. On the Rev A side…we obviously know Rev A works. We have it launched in the several markets for the extended period of time here and I have used it…it works incredibly well. As it relates to the QChat® I think Rick, I let you direct those questions to Sprint, we take our leads from them. We know through their own public comments and everything else that they feel confident that the QChat® is going to work. I know that they have been working on rolling it out to some test markets and so to the extent that they are confident, we are confident and we have heard nothing that should dissuade us from the ability to launch to QChat® later, hopefully later this year.

Rick Prentiss - Raymond James

Final question if I could. Just the way the stories break down, that when you sell and I understand you will be able to sell QChat® phones when Sprint launches it at least to the Grand Rapids area. So you will be able to sell the QChat® phones in your store, but Sprint and Nextel would not be able to sell the QChat® phones in their stores that is quite my understanding?

Tim Yager

Rick that is certainly the understanding and it is a situation where the QChat® and the CDMA product and we have these exclusive rights to our territory and so we will be selling those out of the Sprint stores.

Rick Prentiss - Raymond James

Even if Sprint has the reinvigoration of the Nextel Direct Connect brand, it could cause a little confusion and I guess if you are selling Nextel Direct Connect brand and out of the CDMA store I guess.

Tim Yeager

It could, and it is hard to say it will…during the process of working with Sprint we may have some change there but the moment our expectation is we will sell the Chat® push-to-talk product out of our stores and we will continue to be a competitor of Nextel and will continue to push aggressively the sell the Chat® push-to-talk once we get that launched in our territory.

Rick Prentiss - Raymond James

And will also I guess it might help to clarify that further anyway.

Tim Yeager

And that is your point.

Rick Prentiss - Raymond James

Alright. Good luck and thanks.

Tim Yager

Thank you, Rick.

Operator

Thank you. Our next question is coming from Jonathan Schildkraut, with Jeffries & Company.

Jonathan Schildkraut - Jeffries & Company

Thank you for taking the questions and also congratulations on getting this agreement done with Sprint.

Tim Yager

Thanks, Jonathan.

Jonathan Schildkraut - Jeffries & Company

A couple of questions here. First some housekeeping items, did you give the roaming MOUs for the quarter and if not can I get that?

Tim Yager

Steb is looking that up and if you like to go to the next question we will come back to that one Jonathan.

Jonathan Schildkraut - Jeffries & Company

Sure. Did you use some color on kind of how you view your subscriber base from…you spent a lot of time today talking about prime credits and sub-prime credits maybe gives a little color as to have the subscriber base breaks out into this categories?

Tim Yager

Sure. Our prime subscriber-base really has not moved much over the last couple of years in terms of spending base it has been right at 75% to 76% to prime areas. The gross additions per quarter have fluctuated a little bit over the quarters and I think we do not typically report that on a quarterly basis to provide but I will tell you that we did make credit changes in the fourth quarter that all toward are prime mix for gross additions on the fourth quarter which I think contributed to our gross additions for the fourth quarter and we are certainly contributed to our gross additions in the first quarter but we ultimately think it is going to lead to improved performance of the company and we are getting a better quality customer.

Steb do you have the information he asked as related to the minutes?

Steb Chandor

Yes. Jonathan our travel and roaming minutes on network total about a half of billion dollars up to slightly from the half a billion minutes…excuse me…up slightly from the prior year and essentially flat with the third quarter of 2007.

Jonathan Schildkraut - Jeffries & Company

I was taking a look at the numbers this morning and running through our model and it seems that based on the information you provided in your 8-K that we would see, as a result of the changes in your agreement with Sprint, a fair step down in both your total ARPU which includes roaming and your CCPU we are guessing in the order of magnitude to somewhere in the $10 to $12 range for your total ARPU and about $8 to $10 on the CCPU side. Does that sound right relative to the way the company was looking at it?

Tim Yager

Yes. We have not calculated that number out specifically but again we are talking about 45 million dollars worth of travel revenue and data revenue from Sprint that would not occur if you will in 2007 if we in fact go on to the billing keep in the beginning of the year of 2007 as opposed to 2008 which is the agreement.

Jonathan Schildkraut - Jeffries & Company

Okay. Alright. Finally, just a couple of questions about what is going on with Sprint. I would just start with some of the Horizon, former Horizon iPCS break down. When you first merged with Horizon, the coverage footprints was just over 50% coming out of the iPCS territories but about 60% of the subs coming out of the iPCS territories. Is that still a kind of the same breakdown between the two separate territories?

Tim Yager

Yes. At this point Jonathan, this is Tim. We have not broken out separately between Horizon and the iPCS legacy coverage. I think you are right when we first came in together iPCS probably had about 60% of the covered POPs, but at this point we will continue to build out across our entire network when we tend to review our entire network as one company.

Jonathan Schildkraut - Jeffries & Company

Alright. Great. Finally, just a question going down the same line in terms of your existing affiliate agreements with Sprint as it applies to the iPCS territory or the former iPCS stand alone territory. It was our understanding that there was some contractual language in that agreement that surrounded a violation of the affiliate agreement and the opportunity to put your assets back to Sprint and I was just wondering if you could tell us again what that affiliate agreement said and there was something I have figured it was between 80% and 88% of fair market value…if you could just walk us through that again I would appreciate it.

Tim Yager

Yes, Jonathan. The Sprint were to breach our management agreement, then we have the rights among other things, one of the rights that we would have will be to put our business to Sprint in a situation where they have a breach we could actually put the assets of the business to them at 88% of our entire enterprise value which is defined and without the definition in front of me I hate to say specifically what that means but that is the kind of the process. If they breach the agreement then we have several options, one of which is to put the business.

Jonathan Schildkraut - Jeffries & Company

You have asked for specific performance on the affiliate agreement.

Tim Yager

That is correct.

Jonathan Schildkraut - Jeffries & Company

Well, once again. Congratulations on the agreement, thank you for taking the questions.

Tim Yager

Thanks, Jonathan. I appreciate it.

Operator

Our next question is coming from Robert Hopper, with the UBS.

Brian Pierce - RUM

Hi guys, it is Brian Pierce from RUM. I have a couple of questions. First, what would you early… did you build the charge to the impact of the $99 simply everything pricing, but you guys certainly have an idea of your subscriber-base. I was wondering if you could provide some more color around what kind of update you will be expecting from your base and or were there any kind of ARPU impact that you are looking at this point?

Tim Yager

Yes. Steb can talk specifically about what impact to maybe to our existing subscribers to which we view to be minimal. I think we are in a unique position because we are on a penetrated relative to Sprint as well as our competitors so we feel that we have got obviously the extra capacity to offer the $99 simply everything plan efficiently and we think it is a good competitive offering out there so I know Conrad and his sales team are looking for the sell it and our network team are telling us we have capacity to sell the offering. As it relate to our existing customer-base we do not have a tremendous amount of subscribers over the $100 price point. So we view the…I guess you say the risk to our embedded customer base as being pretty minimal.

Brian Pierce - RUM

Okay. How do you think about that as you roll out EVDO Rev A this year and then going forward? That opportunity certainly would increase as that occurs as you would imagine, right?

Tim Yager

Yes. I think the important thing is, as I understand the simply everything plan covers really the data usage from the handset. It is not for the data cards. It is not for misuse and those kinds of things. So I think that as we launch EVDO Rev A the customer have a better experience as it relate to using his handset for data and as you have the Q-Chat® there and the push-and-talk functionality will be included as well, but we do not view it as materially changing per se the economics for the $99 simply everything.

Brian Pierce - RUM

It is not necessarily driving a better uptake on the data phones and plans around that?

Tim Yager

You know we think it may drive a little bit I think at the end of the day it is going to be really, you know our hope is that it really encourages the customer to use the phone and use the data products and not have that fear of… “I might be going to have a big bill or in fact getting a big bill and having sticker shock we think it is going to lead to a happier customer.

Brian Pierce - RUM

Okay. And then on the bad debt side it definitely seems like the taking standards are yielding results there and you talked a little bit about it in the comments. Did you see the need…you think you are just tweaking the credit centers at this point as there still is a lot of work to do from your standpoint on that end?

Steb Chandor

This is Steb Brian. I think it is a continual process we work with Conrad and his team, with sales team to make sure that we are doing the right thing for the customers as we tweak, if you will credit policies in each one of our market. So there is a process that we continue to do and look at. We did make some major steps as we talk about the accounts of November last year which should have an impact on our bad debt going forward.

Brian Pierce - RUM

Okay. Thanks guys.

Tim Yager

Thanks Brian.

Operator

There appear to be no further questions at this time.

Tim Yager

Thank you, Brie. I appreciate your taking the time to join us on our call today. We are excited about our prospects with 2008 and look forward to updating you in the future. Thank you.

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