Sprint Nextel's Management Presents at Goldman Sachs 22nd Annual Communacopia Conference (Transcript)

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Sprint Nextel Corporation (NYSE:S)

Goldman Sachs 22nd Annual Communacopia Conference

September 26, 2013, 09:40 AM ET

Executives

Joseph J. Euteneuer – Chief Financial Officer

Analysts

Jason Armstrong - Goldman Sachs

Jason Armstrong - Goldman Sachs

Okay. Let’s get started. We are pleased to have Joe Euteneuer, the Chief Financial Officer of Sprint joining us this morning. I am Jason Armstrong from Goldman obviously. I know most of you guys. This is [Matt Niknam] [ph] and my team. So we’ll run the Q&A session today with Joe. Welcome.

Joseph J. Euteneuer

Thank you. Glad to be here.

Jason Armstrong - Goldman Sachs

Let me maybe just start off with sort of broad opening question, obviously there has been lot going on recently, both industry-wide and at Sprint. So maybe talk about sort of current state of the business and some of your top objectives going forward.

Joseph J. Euteneuer

Sure. Yeah, I mean obviously job one is getting our network done. So when you think about the network, maybe I should break it up for you in a couple of pieces. So one is getting LTE on 1.9. So our goal is to try to have about 200 million pops done by the end of the year and have it done -- completely done by sort of mid-2014.

Then we’ve already started to deploy 800 on voice and we’ll start deploying 800 on LTE, starting at the beginning of the year. So we'll have LTE being deployed at the 800 level.

And then if you go back to December of 2011, we had the deal with Clearwire to get LTE rolled out on 2.5 on about just over 5,000 towers. So that will be complete sometime around year-end and then -- on Clearwire towers and then starting at the beginning of the year, we’ll give you guys information about the rest of the deployment of 2.5 on Sprint Towers. So that's sort of job one.

When you think about the progression, the good news is we’ve got the iDEN shut down on time on -- at June 30th. And we actually beat every metric we put out there for you guys as far as conversion rate and all those things associated with iDEN.

The one thing that we didn’t anticipate though that there would be so many customers that just hung on until the last day and there were a number of dual account customers, so customers that were both iDEN customers along with CDMA customers. And when you lose those, they typically not only take their iDEN business somewhere else but they take their CDMA business somewhere else.

And that churn on CDMA, if you recall going into the second quarter we had spent a lot of time getting you guys prepared for this crescendo of disconnects that we thought was all going to happen in the second quarter and with the anticipation that these dual accounts would all be done by the end of the second quarter and what will end up happening is that all the iDEN stuff is shut down as of June 30th, but there is some of the CDMA disconnects will now happen in sort of third and fourth quarter.

So it causes churn to rise a little bit higher than what we would have want to get the normal seasonality increase in churn anyway in the third quarter. But once that’s behind us, I think we have better [selling] [ph].

Jason Armstrong - Goldman Sachs

Great. Maybe take us through the SoftBank transaction and what’s changed since then? It’s been a couple months, has there been sort of a shift in mentality and how is -- how are they sort of exerting influence over spending at this point?

Joseph J. Euteneuer

Yeah, actually I think the differences were closed and now we are just continuing what we’re doing. We had a little bit of interruption when Charlie came in and sort of disrupted the flow what we have, but our cadence with them is we do a weekly video conference with their management team and ours and the subjects are what’s going on in each of our businesses and how do we learn from each other.

We do a monthly in-person meeting with the two management teams where we literally are just focused on what are the best practices of each company and how do we drive synergies. So things that come out of this will be scale, using the combined scale for handset purchasing equipment, IT, in fact IT guys are already on the same page as far as things we’re going to do in the future to sort of take costs out of the model, which is in my mind one of the slowest things that typically happens when you do a merger transaction, but to have both of them already on the same page I think is a big deal for us.

So I think yeah, there is more things to come. But the cadence is really good. Masa is -- Masa and Dan are lock step in where this company needs to go and so I think it's in good shape.

Jason Armstrong - Goldman Sachs

Great. Well, as we think about sort of investor positioning for Sprint as a stock, I think there is a ton of enthusiasm for long-term prospects. It’s hard to ignore this type of spectrum position and people think about the type of capacity you’ll have and the type of network differentiation that could present. But I guess the struggle with -- is from the path to get there. Maybe attacking it from two different ways, first if we can start with the benefits you talked about from SoftBank whether it’s procurement, whether it’s network, what’s sort of the timeline for these phasing in?

Joseph J. Euteneuer

Yes, so I think now that we’re in the process of doing the bidding on the rest of the 2.5 deployment in regards to the Sprint tower. So there we are able to leverage the combined purchasing power of both companies who look at what we can save in regards to deployment cost. So that’s a start.

Looking at next generation handsets and how much we think we’re going to need in the coming years, those will be -- we didn’t get anything for now, but for the next generation that’s coming up, those will be opportunities for us.

So IT will take a little longer I mean we have started the plans but the actual savings will be a couple of years out. But the fact is that they were on the same page and now working towards those goals is hugely important. So it will get layered in here over the next year and two.

Unidentified Analyst

And Joe, one of the other factors, I guess that sort of plays into the longer term trajectory, we’ve got Network Vision savings that ramp as we enter 2014, how do we sort of think about the margin trajectory in wireless in '14 and then more specifically what’s sort of a case for further expansion in '15 and beyond?

Joseph J. Euteneuer

Sure. Well think about a couple of things. So one is, we actually believe that in completing the network, some basic things will happen. In the areas that we have LTE done, we’ve already noticed the improvement in churn. So if we can get the entire network built out, then we believe that churn will come down over time.

When you have a reduction in churn, it lowers your barrier for the number of gross ads you need to put on. In areas that we have LTE, we’ve noticed the improvement in gross ads. So therefore you are naturally going into a positive direction.

As a result of the $10 add-in charge that we put in back in the first quarter of '11, smartphone penetration for us continues to grow. So we should continue to get the benefit of an ARPU that as we go into 2014. So the installment billing we just launched, which is sort of our measured response to what’s out in the marketplace, that could have a little deterioration depending on the take up of installment billing but obviously you have the growth in ARPU.

And second thing is really the take out of expenses. We continue to work on whether it’s moving traffic to our stores, reducing -- improving the efficiency of the customer service rep and reducing the calls coming in, a whole host of things on the expense side that obviously improve the margin.

So you have a combination of both what I'll call the operating side of taking expenses out and top line growth that are both contributors to the improvement in margin over time.

Unidentified Analyst

And then on the iDEN network, you talked about the shutdown at the end of June. So as you look forward, I guess what are some of the upcoming milestones we should expect for Network Vision?

Joseph J. Euteneuer

So back to what I just said, so basically figure about 200 million pops available to us on 1.9 by the end of the year and sort of finishing out 1.9 by mid-2014. We said 800 voices already started, so you can see the deployment of LTE on 800 for data, starting at the beginning of the year. So you can watch that progress.

Then 2.5, you’ll have the 5,000 plus towers complete roughly about year-end on the Clearwire towers at 2.5 LTE and then you’ll see our deployment of 2.5 on our towers starting at the beginning of the year. So I think that fulsomeness of the deployment of LTE and taking advantage of the spectrum we now fully own as a result of the Clearwire acquisition is probably the key thing to focus on.

Jason Armstrong - Goldman Sachs

And just one more on the OpEx side tied to Network Vision, some of the cost benefits you talked about like leasing, roaming, backhaul costs to name a few, what’s already sort of been taken out and what’s sort of the incremental opportunity I guess as we look forward.

Joseph J. Euteneuer

Yes so what you'll notice is the fact that the leasing, shutting down the towers, shutting off the lease payments, those got written off at the end of the second quarter and so you’ll eliminate those OpEx for lease cost on a going-forward basis. The back -- good portion of the backhaul has been shut down and then taken off.

Property taxes will happen as you take the physical gear out, so that will go and there is about $30 million of property taxes, so that will take you into next year and then basically shutting down the utilities on all the towers that you’ll get the benefit from.

Jason Armstrong - Goldman Sachs

And I guess in ’14 we are kind of looking at roaming cost that will gradually come off…

Joseph J. Euteneuer

So the roaming cost benefit really is a result of the deployment of our LTE. So basically moving traffic off of other people's networks on to ours. So that you will start seeing, once you start clearing year end then you got 200 million pops covered, you’ll start noticing that difference.

Unidentified Analyst

So let me pick up on the roaming opportunity and may be tied into network, which I know there is going to be a more robust discussion about this in the third quarter call, but let me try anyways.

Joseph J. Euteneuer

Sure.

Unidentified Analyst

When we talk about Network Vision I think there's been sort of 38,000 cell sites initially attached to this program. When you look at peers that are 60,000, 70,000 cell sites and all of them talking about moving to higher levels over time, you think that up with very high frequency spectrum a big band to operate in, the very high frequency spectrum, it seems like that the cell density required, particularly if you are talking about saving on roaming, which potentially may be suburban, rural etcetera, the type of density you are going to need in this network, probably requires a lot more than 38,000. Can you help us just may be think through that?

Joseph J. Euteneuer

Yeah, I think what we have to come back to is really give you the plans on the deployment of 2.5 and the combination of what I will call macro cells versus micro cells. So Steve and the engineers are working pretty diligently on putting together this plan and we’ll come back to you and tell you exactly what it's going to be whether it’s more macro towers but clearly there’ll be a combination of both.

We clearly have put out there [Steve] [ph] is put out there the fact that using the small cell technology and taking advantage of that for better coverage etcetera, is something we are going to do; the exact amount we’re still looking at that piece of information.

Jason Armstrong - Goldman Sachs

Okay. Your CapEx which obviously has been substantially higher this year is, I think targeted again at $8 billion next year, all things that improve the network and really position you for growth in ’15 and ’16 and beyond. I think you talked the other day about coming off of that and sort of a $6 billion number, which I know you talked about before, but I think you framed it as maintenance capital. This business is more in growth mode in '15, '16; how do we actually think about longer term capital intensity?

Joseph J. Euteneuer

Sure. So the way we approached it was we’ve sort of put together what we’ll call this $34 billion CapEx program, the eight-eight-six-six-six. The six billions were really looking at the industry and sort of after the core builds have gotten done sort of what is that ongoing capital people were spending. And so when we looked at AT&T and Verizon it was roughly about 15% of revenue. So we came up with this, have a $4 billion or $6 billion or 15% of revenue.

The specifics of that gets out starting in 2015 will really come on the backs of once we get this deployment plan of 2.5 announced, we’ll have a much better idea as we get into a sort of what capital looked like on a going forward basis. But we thought that that was a good proxy, based on everything we’ve seen our competitors do.

Jason Armstrong - Goldman Sachs

Okay, so maybe we’ll segue to the revenue perspective and talk about subscriber and ARPU trajectory and may be start out with, as you think through the LTE footprint rollout at what point, and I think you sort of roughly targeted 4Q for this, but maybe you can get into little bit more detail, at what point can you really begin to market more aggressively and if it's going to have more of a national context to it, does the LTE network allow you to do that or you have to be more sort of localized?

Joseph J. Euteneuer

No, no, I mean I think what you are going to see is a combination of both. I mean the key is as we start fully turning up cities, you are going to want to spend marketing dollars in local markets to sort of be competitive because you know you have LTE fully up and running. We’ve used the target of basically having 40% of a city completed, so as you can start talking about LTE, of course you can notice it when you are driving around or going around any city.

So I think it will be a combination of both, but I think you’ll see a better balance of local marketing and national marketing. I think most of the national stuff you’ll see, will be more focused around our unlimited message to fourth quarter discounting offers and stuff like that.

Jason Armstrong - Goldman Sachs

Then on the -- once you’ve got LTE kind of rolled out, I'm wondering on the pricing side that’s kind of being talked about in terms of another lever potentially that the company might be able to use, but you think you need to be through the heavy lifting on network upgrades to put through another sort of price increase and beyond that. Are there other -- I am just wondering are there other ways to sort of boost ARPU you can consider [is AT&T [ph] [inaudible]?

Joseph J. Euteneuer

Yeah, no look, I think obviously AT&T with their increase in fees and stuff was a great thing. It creates a bit -- a nice umbrella for us to look at things. But I think for us right now, we feel good about our positioning from a rate standpoint because that penetration of smartphones will allow us to continue to get that ARPU lift into 2014.

So knowing that our network is not totally done, no sense to upset the apple cart right now, so to just live off the smartphone penetration and the $10 add-on charge that we put in back in 2011 and then as we get that done, then we can look at what our options are. But right now -- but for right now, I think you will see us continue to do our discounting, look at creative offers to sort of drive in this [sub group] [ph].

Unidentified Analyst

And just one more on unlimited, it’s been a big differentiator in recent years, now you’ve got the Clearwire spectrum in the fold, wondering does that give you sort of a long-term runway to continue with an unlimited offer?

Joseph J. Euteneuer

It gives us a lot more runway than we had before. Yeah, I think having the 2.5 spectrum from Clearwire gives us a lot better -- but irrespective of having more runway I mean every day the team is focused on the profitability of unlimited and is it meeting our profitability criteria etcetera. So and you’ve heard Dan up here before say, hey look if for some reason it wasn’t meeting our profitability criteria we would do something about it.

So right now we feel very good about our positioning, having that spectrum with Clearwire is very valuable for us, given our portfolio spectrum versus the competition, so we’re going to leverage that.

Jason Armstrong - Goldman Sachs

And I guess to follow-up on Matt’s question, as you think about the long-term runway for unlimited, unlimited in terms of driving gross ads and lowering churn because you are delivering very high utility to the customer.

Yeah, to some extent may be challenged through a network transition, but as you have a much bigger pie to sell into and I hear you talking about discounting to sort of get volumes going, but it would seem to me like a long-term outlook for Sprint if you are convinced that there's sort of this huge pipe to sell into is through differentiation around unlimited because long-term runway and probably it really boost gross ads and churn over time, because the network gets a lot better.

Joseph J. Euteneuer

Right and we totally agree with that, but we have to -- I need to be able to hand you four phones send you to a city and prove to you that our network is as good if not better than everybody else’s as we complete the build out and I think that’s what you will see.

Jason Armstrong - Goldman Sachs

Okay, the upfront remarks you made about some key priorities and what happened in the last few quarters, you talked about the iDEN network shutdown, you talked about dual count sort of playing a role as it relates to 3Q and 4Q some trends now that we're almost at the end of 3Q do you have sort of a -- I think on the second quarter call the indication was it was still sort of anyone’s guess at that point but do you have may be a firmer indication of what the dual count headwind actually means?

Joseph J. Euteneuer

Well I mean on the second quarter call what we did was we talked about the fact that we knew that we were now going to have this carryover of disconnects. We haven't come out and given any more specifics, we’ll do that on the third quarter call because on the third quarter call we can actually tell you what sort of roll over will be into the fourth quarter if any.

But yeah it was one of those situations where you just had all these customers that just held on till the last day and so our efforts to get them off of iDEN just didn’t give us enough time to get that CDMA portion taken care of. And that was just a little slower to come for those customers. So on the second quarter call we talked about the fact that as a result of that churn would be up in the third quarter.

So we’ll walk you through the third quarter sort of what that actually meant and then talk you about the impact on the work force…

Jason Armstrong - Goldman Sachs

Okay. The change in the marketing message or may be some more aggressive promotional activities that, as you think about that may be towards 4Q does that provide a relatively immediate tail wind or we should think about fairly immediate improvements in terms of the growth add trajectory or you think that takes a little bit longer to layer in.

Joseph J. Euteneuer

I think gross adds will get layered in over time because as you think about it, two cities out of 100, when you add all of that together doesn’t look like that much, but you get 70 cities out of 100 all of a sudden it becomes more meaningful. So I think as we go through the next couple of quarters you will want to hear how are we doing in those completed markets? How is the trajectory, what’s the take up, what’s going on with churn et cetera and I think as you hear that you can then sort of extrapolate out what that means just for the future. But it will be a ramp.

Jason Armstrong - Goldman Sachs

Okay, and in terms of creating long term value, the balance between share growth that before you talked to that, you're really focused on versus lowering churn, where is the bigger opportunity in the business?

Joseph J. Euteneuer

Look we’ve always focused on making sure that we reduce churn right, because that’s to achieve this form of marketing, I mean it’s a lot better to save a customer then spend a lot of money to get that next new one. So we’ll continue our focus on churn but then we’ll go in here to the fourth quarter, so we will be addressing those fourth quarter marketing needs to take care of the gross ads. So it’s a combination but you should always, one of your key things is always care of the customer that you have.

Jason Armstrong - Goldman Sachs

Can you talk about the competitive landscape in the third quarter and we’ve just obviously recently had a device launch that had lines up at the stores. We had handset upgrade programs, that T-Mo sort of picked off and now lot of other, obviously it’s a sort of now you don't need the T-Mo anymore everybody else have launched similar plans. May be talk us thorough what you are seeing.

Joseph J. Euteneuer

So I think what you’ve seen is T-Mo come out with their installment billing plan fairly aggressive and then AT&T and Verizon respond with they are going to want the pay full price on everything we will advertise over 24 months for you.

I think what you see, this past weekend we re-launched our version of installment billing which is probably little more measured response, probably not as aggressive as T-Mo but not as conservative may be as AT&T and Verizon. And part of our focus on that was really to try to stimulate tablets, if you recall last fourth quarter we didn’t get the iPads until almost the fourth quarter was over.

And we’ve probably haven't sold as many iPads as the other competitors and so we’ve been wanting to stimulate and we tried to use this installment billing as a stimulus to that and I think initial signs were that it might be a pick up for us.

Jason Armstrong - Goldman Sachs

Okay, and that sort of leads me to the next question, tablets, quite a little bit less of a role historically for you but how big would you expect that market to be?

Joseph J. Euteneuer

You know, I mean you can just go on a plane and walk around anywhere, go in to restaurant, you always see people have now two devices. You've got your phone and pairing some phone with tablets. So I think it's a market that will continue to grow and continue to expand. So we want to make sure we can get our share there.

Jason Armstrong - Goldman Sachs

Okay. And as you think about the opportunities there, may be some shared accounts over time, is it unlimited model, kind of the right model in tablets as well. Does Sprint want to be branded as the unlimited models across?

Joseph J. Euteneuer

Yeah we still have the Gig types measured service on tablets and that’s something we’ll look at may be on a going forward basis but it is one where there's obviously more usage and we want to be balanced on it, making sure that things are profitable.

Jason Armstrong - Goldman Sachs

Okay. So a question on our funding needs so you recently raised about $6.5 billion in debt. You talked about sort of higher CapEx spend in upcoming years, there is also potential spectrum purchases that are on the horizon. Do you sense the business is fully funded at this point or sort of you consider additional financing?

Joseph J. Euteneuer

Yeah, I mean look we were fortunate to get the $6.5 billion, we really went out for two but it allowed us to get the cash to take care of the Clearwire and get that refinancing. You get, that we are paying 12% interest on it. We can now have for less than 8%, even in the 7%. So that’s a big savings on interest rate for that money.

And in regards to we have done vendor -planning and so the combination of going out and getting an unsecured debt and vendor planning I think has been our vehicle to provide cash for the business. I think really the ultimate financing needs will really be determined on our operations. So as long we keep meeting our operating goals we will be fine. But I think it's that intensity of making sure that we get our operating goals that will be the ultimate change.

Jason Armstrong - Goldman Sachs

Just one follow on, is there sort of a minimum cash balance that you are looking for?

Joseph J. Euteneuer

So one thing is as we get -- as we start finishing the network and we’ve been maintaining roughly about $4 billion give or take on average of cash although we have in excess of $10 billion right now, we can bleed that down on probably on a run rate basis getting around to $2 billion range, so you will use some of that, part of your liquidity that you are talking about as far as being fully funded, comes from actually bringing down your cash balance and getting down into around the $2 billion level as you finish the network.

Jason Armstrong - Goldman Sachs

Strategic has been a large part of the focus at this conference and there has been sort of a pretty large divergence in views as to what can happen in the U.S at this point, and we had some companies say that large scale deals in U.S. can happen and they are looking internationally as a result. Others have sort of taken a different view. May be just a high level comment four to three is that something that’s possible…

Joseph J. Euteneuer

It’s probably the most abated thing out there. You have everyone, who let's say there is [inaudible] and other people say now the environment is probably right to get it done. I think when you think about it from a macro perspective in the industry and you look at the imbalance of the size and scale of AT&T and Verizon versus the rest of us, there is no doubt in my mind that when you look at comparing industries that when you get down to three comparable size players you get much more effective competition.

So I think from a macro perspective one would say that that would be a good thing for the industry. The capabilities of whether it gets done, I’ll leave that all up to the -- all of the politicians and stuff we have to deal with. But you are dealing with two different agencies. I mean DOJ is something that’s unless you have totally mathematical base, but really looking at the economic benefits to the consumer etcetera and then the FCC has to deal with sort of its view of that.

So I think we’ll leave it up to them. But it is something that is highly debated and has every end of the spectrum of opinion in that regard.

Jason Armstrong – Goldman Sachs

Okay. So picking up on spectrum and you [aggregated] this massive spectrum portfolio and that has huge long-term operational benefits. Does that, from an M&A perspective is that actually kind of a limitation at this point? I mean theoretically [people can use] 200 megahertz of spectrum really allow them to get any bigger in spectrum terms?

Joseph J. Euteneuer

No, I wouldn't think so. I mean I think remember you got to look at the portfolio of spectrum. So yes, we do have a good abundance of spectrum in 2.5, but when you look at our 800 and 1.9, one would say we could use some more of the lower band spectrum. So I think when we think about spectrum and we talk to Dan and Masa about these things, it’s about getting balance. So I think you’ll look for us to try to get sort of balance, that’s sort of spectrum.

Jason Armstrong – Goldman Sachs

So if you think about the path to more spectrum, each block is probably the next sort of near term path, let's say it's a smaller channel, but it’s every bit of that but -- and I guess I have had the question posed to me is five by five relative to 200 megahertz, is that given how contested that auction might be, is that worth Sprint’s time?

Joseph J. Euteneuer

Yes, I think this will go through that evaluation as we speak. We were looking at our current portfolio on how to leverage the 2.5 given consideration to the H block that is going to start in January and then obviously you got the broadcast spectrum that’s on the future. So broadcast spectrum is a lot lower bandwidth, which will be helpful for us. So I think we have not made any announcement of anything yet, but it's something we are clearly looking at.

Jason Armstrong - Goldman Sachs

Okay. And so relative to Matt's questions on the funding of the business, the comfort level around the balance sheet, do you feel any limitation as it relates to additional spectrum and your ability to go out there and pick your spectrum?

Joseph J. Euteneuer

I think it’s a little bit of timing, right. I mean if you go -- when you think about the broadcast spectrum that’s a lot more spectrum, which will come with a higher price tag, but if we continue to stay around our business plan, I mean you think by 2016 you are at a point where you can be de-levering the company and therefore if we needed extra cash at that point to take care of a purchase of spectrum, we could have the ability to access the capital markets or be able to generate it out of the business itself.

Jason Armstrong - Goldman Sachs

Okay. May be we can talk about network sharing for a minute and obviously there's been sort of a framework in place historically for the partners going forward, may look a little bit different and maybe just piss you off through an auction process. But maybe if you can help us think through this, what -- is Sprint still willing to play a role in the industry if an interesting network sharing partner…

Joseph J. Euteneuer

Look, given our original circumstances when we knew we wanted to roll out the LTE network, we made the decision to roll it out with multi-module technology and the LightSquared deal was in my mind a great example of our willingness to share and partner with people. And so irrespective of the things we’ve been through for the last six months to get to where we are today, I think we’re still open to look at opportunities that make sense for both sides.

Jason Armstrong - Goldman Sachs

Okay, but is it open in the context of the leverage in your mind, has shifted relative to what it may previously have been?

Joseph J. Euteneuer

I don’t know how much leverage has shifted. The fact of the matter is that in any type of joint venture arrangement it’s going to be an arms-length negotiation that has to work for both parties. So leverage is -- I am not sure if there's leverage on either side.

Jason Armstrong - Goldman Sachs

Okay. And so back to the regulatory question with the size of your spectrum portfolio, would there be any sort of regulatory obstacle at this point to network sharing?

Joseph J. Euteneuer

Well I think you would -- the fact that if we could help anyone deploy added spectrum through a joint venture, I think that would be good for the FCC to get more spectrum deployed out there. So I would think that they would view that positively whether there is any other ramifications I wouldn’t anticipate that right now.

Jason Armstrong - Goldman Sachs

We’ll ask a couple of more on that and then we’ll open to the audience Q&A.

Unidentified Analyst

Just wanted to pick up on prepaid as well on that, but you guys have been a key player in the prepaid market in recent years with a multi-brand strategy. I am wondering you’ve got more players, more new brands emerging in this segment. How does Sprint sort of evaluate the balance, the growth and profitability opportunities in this market?

Joseph J. Euteneuer

Hey you know our approach to that has really been using multiple brands, going after different segments of the population and that has sort of paid dividends for us. I mean Virgin, the [Boost] brand, using assurance for the government subsidized stuff that seemed to work, those brands have done pretty well. They clearly have two distinct groups of -- types of customers and so I think we are still favorably disposed on continuing to look at that multi-brand approach from a prepaid perspective.

Unidentified Analyst

And just in terms of differentiation right, you’ve had just multiple products out there. Does Sprint -- so what sort of Sprint, I guess differentiate it to a prepaid customer?

Joseph J. Euteneuer

Well I mean clearly you started to see more deployment in smartphones and putting those in prepaid customers' hands at different price points. So I think you will just continue to see, trying to make more available some of the smartphone technology for the prepaid customers.

Jason Armstrong - Goldman Sachs

Great let’s go to some audience questions, great, couple up here.

Question-and-Answer Session

Unidentified Analyst

Yeah, I wondered if you could share your thoughts on what mix you think this is going to be between sort of traditional postpaid and one-up or early upgrade programs and then also if you can talk a little bit about the accounting around how that’s going to look?

Joseph J. Euteneuer

Sure, so you are talking about the installment billing plan that we just launched. So what happens is when you are dealing with installment billing and using the revenue recognition that gives you the multi-element, where you have to allocate things. So basically you’ll get an OIBDA benefit right, because you are basically taking the equipment and revenue upfront and then you are getting the stream of access payments over time. So you do get an OIBDA benefit out of installment billing.

But I think if you -- and the reason for that is you don’t have a subsidy right, you are basically eliminating a subsidy. And if you think about that model, the more people you could actually move to where they are basically paying for their phone, I mean AT&T and Verizon are leading the, what I’ll call the model perspective of getting people to pay full price for a phone and just amortize it over 24 months.

I mean that really helps profitability because you are eliminating the subsidy. So the more people we could probably put on that, I think that would be a good thing for the…

Unidentified Analyst

Hi, I had two questions on spectrum. Firstly [actually] I think the megahertz per pop has been the simple evaluation that the streets use given downlink has become so much more important. Is it more correct to look at spectrum evaluation in terms of like a downlink available per megahertz pop that’s my first question? And then secondly, given your spectrum position and you are still trying to gain scale, in the future would you be open to doing a wholesale MVNO?

Joseph J. Euteneuer

Yeah so I mean clearly we’ve looked at answering your last question MVNO and wholesale is something that we’ve traditionally done and haven’t stopped. So that’s still available to us. In regards to the evaluation of the spectrum, I think as much as now people are recognizing some of the downlink stuff, I think you’re still looking at both metrics in determining the value of any spectrum. So I don't there's one metric -- key metric that makes the final determination.

Unidentified Analyst

Talk a little bit about how Wi-Fi 2.0 fits into your spectrum planning needs and also what part of the network it might be going forward?

Joseph J. Euteneuer

Yeah, sure I mean Wi-Fi or off-load has been something that we’ve been working on for a while and it will continue to be an integral part of the deployment of the network. So the more traffic we can push on Wi-Fi, the more efficient our network becomes. So it is clearly a part of the strategy and you will hear more about that as we sort of talk to you about the 2.5 deployment.

Unidentified Analyst

Could you tell us a little bit about how you are approaching it now and how it might change over time?

Joseph J. Euteneuer

Well I mean right now in -- not all of the handsets, but the handsets that we're rolling out all have software on it, so that we can sort of push Wi-Fi instructions to what -- to get offload at certain times etcetera. So the engineering group continues to look at putting software on devices that allows that move.

Unidentified Analyst

And in terms of partnerships or how do you get there?

Joseph J. Euteneuer

Yeah, we haven’t announced anything on that yeah, but clearly we are open. I mean if anyone has been a great partner in different types of joint ventures, and even Masa, SoftBank have been clearly a lead and when you think about how we've deployed everything to-date, we’ve been pretty open including when we had the LightSquared deal at that one point. So we’re open to those types of things we just haven’t announced anything to-date.

Unidentified Analyst

Can you talk a bit about…

Joseph J. Euteneuer

Okay, sorry.

Unidentified Analyst

Just it would be great to understand a bit about handset availability to the various bands that you are going to be using which are relatively unusual and whether the cooperation with SoftBank has -- changing the kind of ecosystems' willingness to deploy that.

Joseph J. Euteneuer

We’ve already announced that by -- sometime before the fourth quarter that we’ll have the three band phones also in 2.5, 1.9 and 800. So those will start coming out as we exit the year here. And so, yeah, I think SoftBank what they give us is just that added leverage because of the size of number of handsets we will be purchasing across the globe.

But clearly most of the handset manufacturers are more into cellphones and therefore they want to make sure that they put the proper bandwidth in them, so we’re not worried about that.

Unidentified Analyst

Based on your capital deployment over the next couple of years, should we start to see a meaningful decline in roaming fees, roaming expenses?

Joseph J. Euteneuer

Yeah, as we exit the year, you will start noticing, because once you got 200 million pods covered covered on 1.9, you will start seeing the roaming benefit start accreting to us.

Unidentified Analyst

So that will increase more and more as we go into ‘14, ‘15, ‘16?

Joseph J. Euteneuer

Well, they are not totally going to go away, right? But you will have a good reduction of it.

Unidentified Analyst

And then -- so is that a 50% reduction, I can use, I mean it’s a big number now.

Joseph J. Euteneuer

Yeah, that’s a big number. But it will be a meaningful number. At least that's our current anticipation.

Unidentified Analyst

Okay. Great.

Jason Armstrong – Goldman Sachs

Other questions? Okay. May be I’ll follow-up on those, couple more just rapid fire round here. So on that question that 200 million pops that you covered net, that's sort of forming an opportunity to take down the roaming footprint. Why isn't roaming sort of overly reliant on the 100 million that you don't cover? It seems like that sort of the natural territory where you would be roaming right now and so we have more of a tail to this.

Joseph J. Euteneuer

Yes, no. Actually given where we were in regards to current network and the density in some of the cities, we actually had to use more roaming to get covered. So therefore it was just how we were managing the network at the time, given our cash etcetera. So I think that’s why you will see a more material benefit then in regards to the 200 million pops in that.

Jason Armstrong - Goldman Sachs

Okay. And then on the handset question and just sort of what may be a framework for the incremental leverage you will get with SoftBank purchasing power, as we look at the U.S. I guess the push back would be is, is there much of a sliding scale between the AT&T and Verizons of the world and Sprint, T-Mo etcetera, where the subsidy is really that different given the leverage the handset vendors have.

Joseph J. Euteneuer

Sure. I think that’s a fair question. I would think that volume does matter. I mean clearly AT&T and Verizon have had the benefit of that, now we get a little bit of benefit as a result of having the combination with SoftBank. So I do believe that there is a benefit there. What's the size of that benefit is yet to be seen, but I do believe there is a benefit.

Jason Armstrong - Goldman Sachs

And then last question just the -- we’ve obviously seen SoftBank sort of take advantage of some differential they’ve found on the tax code and take the ownership position above 80%. What in your view is their commitment to maintaining a public equity base in the U.S.?

Joseph J. Euteneuer

I think Masa has been pretty vocal about -- he did this transaction with us for a purpose. I think that taking it up to 80% was really no more than just taking advantage of the tax and making sure that we could protect the NOLs. So I think he is committed to that. He has made at least to us, he's not given us any indication that he wants to do anything less.

Jason Armstrong – Goldman Sachs

Okay. We’ll wrap it up here, Joe. Thanks a lot.

Joseph J. Euteneuer

Thank you, everybody.

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