Sprint Nextel Q3 2006 Earnings Call Transcript

| About: Sprint Corporation (S)

Sprint Nextel Corp (NYSE:S)

Q3 2006 Earnings Call

October 26, 2006 8:00 am ET


Gary Forsee - President, Chief Executive Officer, Director

Paul Saleh - Chief Financial Officer

Kurt Fawkes - Vice President, Investor Relations


Michael Rollins - Citigroup

Simon Flannery - Morgan Stanley

Thomas Lee - JP Morgan

Rick Prentiss - Raymond James

David Barden - Banc of America Securities

David Janazzo – Merrill Lynch

John Hodulik – UBS

Chris Larsen - Credit Suisse

Phil Cusick - Bear Stearns

Richard Klugman – Prudential

Tom Watts - Cowen & Co.

Will Power - Baird

Tom Seitz - Lehman Brothers


At this time I would like to welcome everyone to the Sprint Nextel third quarter 2006 earnings conference call. (Operator Instructions) Mr. Fawkes, you may begin your conference.

Kurt Fawkes

Thank you. Good morning, everyone and thanks for joining us on our call. For the format this morning, Gary Forsee, our CEO, is going to kick off the discussion, followed by Paul Saleh, our Chief Financial Officer. We will finish the call with Q&A.

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

Throughout our call this morning we will be referring to several non-GAAP metrics. Reconciliations of these metrics to the appropriate GAAP measures for the third quarter and year-to-date can be found on the attachments to our earnings release and also at the end of today's presentation which is stored on our website.

I would also like to point out the consolidated and wireless results will be discussed as continuing operations this morning, as well as on a pro forma basis unless we note otherwise.

On slide 3 we illustrate the normalizing items for net income and EPS for the third quarter. Sprint reported net income from continuing operations of $247 million or $0.08 per share. That compares with pro forma earnings of $156 million or $0.05 a share in the year ago period. The net impact of merger and integration costs, restructuring items and a favorable tax settlement true-up was $0.02 per share and after-tax amortization was $0.22 per share.

Adjusting for the items, net income of $948 million or $0.32 for the quarter compares to $0.30 a year ago. Special items are described in the notes in the financial data section of our press release. Now, here is Gary.

Gary Foresee

Thank you, Kurt and good morning, everyone. Since we reported our second quarter earnings we have crossed the one year anniversary of our merger. We have accomplished a lot in a relatively short period of time. Repositioning the Company with the spin of EMBARQ, acquisition of affiliates and Nextel partners, the cable joint venture and the wiMAX technology announcement; delivering against many of our integration goals including areas such as retail store rationalization, systems consolidation, network integration, and producing positive results around margin expansion, solid free cash flow and strong data growth, wireless and wireline.

We have also been very openly and transparently that our operating results are not what we or you expected. We know very specifically the actions and focus required to improve our results. We'll be reporting to you this morning on those actions taken and those planned.

After a year, we certainly know the challenges unique to our merger as we operate two wireless networks, manage the Sprint and Nextel brands and carefully integrate the cultures to create a new, even better company. There remains substantial work ahead of us, and investments will continue to be required to have our key operating metrics of revenue growth, churn and profitability where we want them to be. I believe the actions we have taken in this quarter are clear steps in that direction.

Our merger success will be measured on two fronts: on improved results tied to our operational improvement plans and by continuing with our strategic actions that will keep us positioned to create long-term shareholder value.

Turning to slide 5, for starters, let's reiterate what this company stands for. Our strategy in the transformation of our company has taken is a clear mission. Quite simply our mission is to offer the best products and services on the most powerful network. Our customers will be connected anywhere with multiple powerful devices on wireline and wireless platforms. We believe our assets uniquely support this mission, and we will continue to execute against this promise and expectation.

Turning to slide 6, the key actions for the third quarter. As you will recall, during our second quarter earnings call, we listed off several items that we were going to focus on and I want to update you on our progress. In the third quarter we made continued investments in the network, including spending roughly $2 billion to improve quality and expand coverage to maximize the customers’ experience. We launched our branding campaign, focused on the power of our network. We tightened credit as we outlined in the second quarter, to improve our customer mix; and addressing ARPU, we committed to slowing the rate of decline and we saw modest progress on this goal in the quarter. Paul will provide a detailed discussion of ARPU trends.

We are energizing the handset lineup, adding the hybrid CDMA iDEN phone as well as the RAZR, CRZR and SLVR for fourth quarter introduction. The hybrid phone allows us to begin utilizing the power of our two national networks, the best push to talk on iDEN and the best voice and data on our CDMA platform.

We are strengthening our distribution channels, especially in our third party iDEN dealers. We restructured the Company's sales, service and distribution organizations. We believe this change has streamlined our operation and gives us the ability to be more focused on the customer experience and the unique needs of the various markets we serve.

In addition, we continue with other new developments on both strategy and operations. We are piloting seven markets through our cable joint venture with bundled service and I will address that in some more detail a little bit later.

We announced wiMAX as our 4G technology choice, and we detailed the substantial ecosystem we expect to develop around that technology. On a more near-term basis, over the weekend you may have notice our new consumer advertising. This advertising marks the next step up in the evolution of the Sprint brand under the new power-up positioning.

In the quarter, through effective cost management and capturing merger synergies we posted improved margins. With this being our first full quarter with local out, the Nextel partners and Ubiquitel in, you now have a better indication of the financial potential of our asset mix. Finally, with our quick start on the stock buyback in the quarter, we're executing against the plan that was announced at the end of the second quarter.

I would now like to move to slide 7 that highlights some of our consolidated third quarter financial results. Total revenues in the quarter were $10.5 billion. The 8% annual growth was driven by acquisitions and a larger customer base. Consolidated adjusted OIBDA was a little under $3.4 billion, and our adjusted OIBDA margin was 34.8%. We continued to generate strong free cash flow which reached $769 million in the quarter. Adjusted EPS was $0.32 for the quarter, up 7% year-over-year.

In the quarter we lost more than a penny a share compared with the second quarter from lower interest income due to Ubiquitel and Nextel partners acquisition, debt retirement, and significant purchases of common stock. In August we initiated a common stock buyback program and in the third quarter we acquired 91 million common shares at an aggregate cost of $1.5 billion.

Finally at the end of the quarter, Sprint Nextel served 51.9 million total customers on our wireless networks. This is an increase of 6.3 million or 14% since the third quarter last year. There are roughly 22 million customers on the iDEN platform and 30 million customers on the CDMA network.

I would now like to turn to slide 8 and talk about our churn performance. Stating the obvious, we need to improve churn in order to return to strong subscriber and revenue growth. Our third quarter postpaid churn was 2.4%. Churn was higher sequentially due to higher seasonal CDMA and voluntary churn, higher core iDEN voluntary churn, and disappointingly, high Nextel partners churn. In the quarter, customer deactivations were 55% voluntary and 45% involuntary.

We have implemented a number of programs to improve our involuntary churn over time, and these include tightening overall credit across both platforms, and we have done specific credit tightening on iDEN capacity-constrained markets.

Investments we are making to improve voluntary churn center around our brand, network performance, overall customer satisfaction and new handsets with more aggressive handset pricing. In the fourth quarter we expect churn to be at a similar level to the third quarter and expect churn to trend lower beginning in the first quarter.

Turning to slide 9, we'll talk about our net add performance. Over the past several quarters we have seen divergent trends developing on our two platforms. CDMA has been experiencing stable sales performance. Gross adds, even excluding the Ubiquitel acquisition increased sequentially, and we're flat year-over-year on an apples-to-apples basis.

AirCard growth has been very robust which is also contributing to these results. The quality of our CDMA gross adds is also very promising with the absolute volume of prime gross adds at the highest point in seven quarters, in the third quarter. The postpaid performance in the core iDEN platform in the Nextel partners business is below historical results and our expectations.

In both businesses, gross adds are lower sequentially and down significantly year-over-year. In part, this is due to our efforts to manage growth and to maintain network performance. As a result, we reported a decline of postpaid subscribers in core iDEN and Nextel partners. Boost mobile net adds were affected by managing growth in constrained markets and higher churn due to competitor actions.

Obviously we're not pleased with our gross add results, especially on iDEN and as we continue to invest in our distribution, branding, customer experience and our network we expect improved performance in the future.

I would like to turn to slide 10 and talk about our new branding and marketing campaign. In the third quarter we launched our updated branding and marketing campaign centered around the nation's most powerful network theme. The print advertisement you see on the slide has the proof points as to why we have the nation's most powerful network. We are excited about this campaign and expect over time we will improve the perception of our company and begin to distance Sprint from its competition related to both network performance as well as the overall price/value equation.

Since summer, the launch of our national brand awareness campaign has been augmented with local network messaging and advertising that aggressively highlights our superior data network. It is early, but we are optimistic and look forward to this campaign ultimately improving our operational results.

Turning to slide 11, let me talk about our wireless mobility leadership in the third quarter. We posted what we expect to be the industry's highest reported ARPU of $7.75. This is a $0.50 increase sequentially and $2.50 increase year-over-year. Annualized data revenue is now approaching $4 billion. We're also very pleased to announce that CDMA data ARPU is now over $10. We believe that our superior CDMA data ARPU is a result of the significant investment and energy that is being directed at our Vision and Power Vision data networks and we believe the results speak for themselves.

We are seeing strong adoption of advanced data devices and services, and according to industry reports, Sprint leads in usage of data services across most categories of TV, music, e-mail, gaming and navigation.

Our Sprint music store now has over 6 million songs that have been downloaded, or 50% of our base pace for data services in a given month. Over 90% of our 1.5 million Power Vision subscribers are actively using data in a given month. Additionally, they're generating an average of over 25 megabits of usage per month.

Sprint Nextel continues to have the largest broadband network with our EV-DO network now covering over 165 million population. This is being expanded to 200 million covered population in 220 metropolitan areas by the end of December. In addition, Sprint Nextel was the first in the nation to open an EV-DO RevA market, with our announcement of EV-DO RevA now available in San Diego. We expect EV-DO RevA coverage to reach more than 40 million people by the end of the year.

With RevA technology, peak download data rates increased to 3.1 megabits which is up from 2.4 on EV-DO Rev0, and peak upload data rates increased to 1.8 megabits, up from 154 kilobits. These data rates can enable richer application and services such as high speed video telephony, music on-demand, large file uploads and high performance push-to-talk capability.

It is also important to note that with the hybrid phone, our iDEN customers will gain access to mobile broadband service. Given the strong business mix of the iDEN base, we believe this will be a significant growth opportunity for data services.

Now I would like to turn to slide 12 and talk about the initiatives we have with the cable companies. We're pleased with the performance of the wireless business. To date, we have signed 12 separate agreements with leading cable companies and the most recent being an agreement signed just yesterday with Sudden Link which adds another potential 2.8 million homes passed as potential VoIP customers, which will bring the total supported MSO portfolio to just over 30 million homes passed by the end of 2007.

Annualized revenue from this business is now over $275 million. At the end of the third quarter, there were over 1.3 million VoIP wireline cable subscribers, an increase of 116% since the third quarter last year. We continue to see very strong growth in both wireline cable subscribers and revenue fueled by demand for cable telephony service. Our growth will further be bolstered beginning in the middle of 2007 when we expect to begin to bring on an additional 800,000 Time Warner customers that are currently served by another VoIP provider. We are currently making significant investments in this portion of our wireline business to support this demand.

We are also pleased with the progress we have made to-date with the wireless joint venture. There has been very significant and important work behind the scenes preparing the systems between the companies to make sure the customer has the right experience. This sets a solid foundation for when we begin to load the systems with customers. The product offerings that we are targeting are very compelling. As part of the benefit of the unique packaging and bundled services, the offer will leverage the significant content the cable partners are bringing to the bundle, including on a local basis, and provide the ability to have geographic-specific cable content on your phone while you're traveling. We currently expect to launch commercial service in select markets before the end of the year and advance of a broader market launch in 2007.

Turning to slide 13, I would like to give you an update on Boost Mobile and our MVNOs. Boost Mobile is making a growing, positive contribution to our overall reported results. In the third quarter Boost service revenues increased 82% year-over-year, and this was driven by a 93% increase in customers. In the third quarter, Boost Mobile had adjusted OIBDA margins in the high 20% range. In the quarter, ARPU of approximately $32.50 and churn of 6.8% were both influenced by increased competition brought on by new entrants and this market segment continued to grow at a faster pace than the overall industry.

Turning to our MVNO business in the quarter, MVNO results rebounded from a soft second quarter. Subscribers reached 5.5 million in the quarter. There has been a lot of press about the decision of ESPN Mobile to close their MVNO, but there appears to be significant growth opportunity in this space. In the third quarter all of our MVNOs saw sequential growth in both gross and net additions and we expect another strong fourth quarter.

Slide 14 outlines our technology road map. The point of this chart is to highlight that our technology plan of record as announced at the time of the merger, is on track if not ahead of the plans that we envisioned at that time. Our significant investment in IP and MPOS services within our backbone continues to pay dividends. In the third quarter, IP services increased over 26%.

We are investing in wireless voice network to rapidly expand coverage and to ensure that our CDMA network is second to none. In total, we expect to add 8,000 cell sites between 2006 and 2008 on our CDMA network. Additionally, we will continue to invest in our iDEN network. As I noted earlier, the hybrid phone represents the starting point of merging our iDEN and CDMA capabilities. We continue to hit milestones to allow for the same leading push-to-talk capabilities on the CDMA network using QChat technology beginning in 2008. Finally, we are currently in the RFP stage on our wiMAX infrastructure and we continue to expect initial commercial availability in 2008.

Slide 15 provides an update on our iDEN network. There are three primary initiatives that we are focused to ensure that the iDEN network has the best performance possible today as well as into the future. First, we're making significant investments. In 2006 we will be investing over $2 billion on the iDEN network and adding more than 1,600 cell sites to map coverage to the needs of our customers and to increase capacity across the country.

Second, we're beginning to utilize the power of the two national networks as I just described with the hybrid phone. First of all, this phone began entering selected distribution channels beginning in early October. For the balance of 2006, the initial deliveries of the hybrid phone are targeted at the iDEN base. Beginning in early 2007, we expect the phones will begin to fill the retail channels, and we will be introducing new models including those with DO capabilities.

The third area is rebanding. We are fully committed to the rebanding process and progress has been made toward meeting the requirements of the FCC order. As a reminder, this initiative requires us to relocate public safety agencies to a new band of spectrum in order to eliminate potential interference. In return for providing a portion of our 800 megahertz spectrum and bearing the relocation costs, we will receive a nationwide license for 10 megahertz of spectrum in the 1.9 band.

As many of you are aware, there are two phases in rebanding. For Phase I, the milestones are on time and on budget, including delivering the required markets by the end of this year, and we are now beginning the planning of our Phase II.

I would like to finish with slide 16 and talk about our review of our focus areas as we move to the end of this year and as we go into 2007. As you can see on this slide, I have divided references under the two broad categories of growing the business and improving our operating performance. Under the growth category, you will note that reduce churn is in bold letters. This is clearly the single most important driver to return the business to growth and the entire organization -- all 60,000 of us -- are very focused on this effort. While we are pleased with the wireless data performance to date, we believe there is significant untapped potential, and we will be capitalizing on this opportunity.

We will leverage a new branding and marketing campaign and we will be highly visible with this effort. We will continue to strengthen our distribution channels, direct as well as third party. Finally, you should expect our initiatives will gain increasing momentum as we exit this year and move into the first quarter.

Under improving operating performance, we will continue to invest in our networks to maintain the largest voice calling area and the largest broadband service area. We will simplify our business to enhance effectiveness and lower our cost structure to capture cost savings and deliver the merger synergy promise. We will implement Customer Service initiatives to improve customer experience and loyalty. These initiatives will range from investments to improve first call resolution, our unified billing platform that is in progress as we speak, in-store and online dynamic coverage maps, our more aggressive handset upgrade program and improvements in call routing and customer care. Finally, we will be following through on the technology road map that I just described.

Now we'll turn to slide 17 and I will turn it over to Paul.

Paul Saleh

Thank you, Gary and welcome, everyone. I will begin by reviewing our financial highlights which are found on slide 18. For the third quarter, we reported wireless service revenues of $8.2 billion which increased 6% sequentially and 14% over the prior year. Our revenue growth was driven primarily by acquisition, and revenue contributions from Boost Mobile.

Adjusted wireless OIBDA grew 8% sequentially and 20% versus one year ago, reflecting the benefits of our merger synergies, contributions from acquisitions, and tight cost management. Our adjusted wireless OIBDA margins of 38.4% is a record for Sprint Nextel and is indicative of the operating leverage potential as we scale our wireless business.

In our long distance business, Sprint Nextel reported revenues of $1.6 billion which were down 1% sequentially and 6% year-over-year. Normalizing our long distance revenues for the sale of the conferencing and UniP business, revenues would be up slightly on a sequential basis and would have been down by approximately 3% year-over-year.

In the quarter, strength in our IP and cable telephony business partially offset continuing declines in consumer voice, ATM and frame relay. Long distance adjusted OIBDA for the quarter was $206 million and adjusted OIBDA margins were 12.7%, reflecting greater network costs from a ramp-up in IP traffic as well as increasing volumes from our lower margin wholesale business. On a consolidated basis, Sprint Nextel reported $10.5 billion of revenues and adjusted OIBDA of approximately $3.4 billion, both higher sequentially and year-over-year.

On slide 19 we've highlighted our wireless ARPU trends. In the third quarter, postpaid ARPU was $61, a sequential decline of 1%. Rate plan migrations moderated during the quarter as a result of changes that we made to some of our pricing plans. We continue to experience a decline in our monthly voice ARPU, but the decline is partially offset by continued strong growth in wireless data. As Gary noted, data ARPU was approximately $7.75 per sub per month, or 45% greater than one year ago.

On a year-over-year basis, postpaid ARPU was down about 4% after adjusting for the lower ARPU from acquired affiliate subscribers and the elimination of affiliate travel revenues.

Turning now to our prepaid Boost business, ARPU declined 3% sequentially to $32.50 in the third quarter as a result of lower monthly usage and increased competition from local carriers offering flat rate unlimited rate plans. Despite these pressures, Boost continues to grow OIBDA margins which have recently been in the mid to high 20's.

Moving to slide 20, our wireless adjusted OIBDA margins were up strongly in the third quarter to 38.4%. Contributions from our acquisitions helped to offset the impact of lower ARPU and higher churn. Our margins also reflect the benefit of accelerated merger synergies. We are realizing savings from new sourcing contracts and leveraging our scale. We're streamlining our businesses and driving cost out of operations.

We're making progress on rationalizing our retail stores. So far this year we've closed 255 stores. We've also eliminated over 1.3 million square feet of office space which is about 10% of our total. We're beginning to roll out our unified billing system, our iDEN subscribers have been transitioned to the new platform, and we are in the process of converting both new and existing CDMA customers. This process will be completed in mid-2007. Overall, the Company is on track to realize the $14.5 billion of MPV merger synergies.

On slide 21, let me discuss some of the investments which we are making to reduce churn and deliver long-term value. These investments will pressure margins near term, but will position us for success in the long term. These investments include aggressive pricing for new phones starting in the fourth quarter. We're also deploying more coverage n quality cell sites to improve the customer experience. These investments are consistent with our long-term network plans which we have discussed with you previously.

We're accelerating the EV-DO build to 200 million covered POPs and deploying the higher speed RevA upgrade to 40 million POPs by the end of this year. Let me also note Sprint has began selling three EV-DO RevA capable air cards, including one from NovaTel Wireless that plugs into a USB port.

We plan to increase our branding and advertising so that the Sprint brand is front and center for high value subscribers. We will continue to focus on our most powerful network message and highlight our differentiated services for consumers and businesses. We're also reinvigorating growth through our indirect distribution partners with a series of initiatives which include success-based compensation plans aimed at attracting prime voice subscribers and incentives to drive greater sales of wireless data services. We are also investing in customer care. We plan to deploy new tools to facilitate first call resolution and enhance the productivity of our reps.

We firmly believe that these actions will have a meaningful impact on customer satisfaction and loyalty and reduce churn.

Let me turn now to a discussion of our free cash flow from operations. As shown on slide 22, Sprint Nextel continues to generate strong free cash flow. The components are as follows: we generated approximately $3.4 billion of adjusted OIBDA in the quarter. We incurred $157 million for special items including merger costs and restructuring charges. We spent $303 million on other operating activities such as changes in working capital. We invested $1.9 billion on capital expenditures. We paid $74 million of cash dividends, and we used $176 million in other investing activities. The total free cash flow was $769 million for the third quarter.

As you can see on slide 23, we ended the third quarter with a very strong balance sheet. Total debt was $22 billion, and our cash and marketable securities were approximately $2.1 billion, resulting in a net debt of $19.9 billion.

During the quarter we purchased 91 million shares of our own stock for approximately $1.5 billion. The Company will vary the amount and timing of its common stock purchases.

During the quarter we also reduced our debt by $1.8 billion which included a scheduled debt maturity payment and the redemption of high coupon debt. We also closed our $1.3 billion acquisition of Ubiquitel, and so at the end of the quarter our net debt to annualized adjusted OIBDA is approximately 1.5 times. The average cost of our debt remains around 7%.

Now, let me comment on our 2006 guidance found on slide 24, which is unchanged from the guidance we gave you at the end of the second quarter. As we discussed earlier, we are implementing several actions to improve the quality of our customers that we are acquiring, including further credit tightening. These actions will likely constrain gross adds and net adds in the near term. We are also making investments to improve our performance which I have outlined on slide 21. These collective actions coupled with year end seasonality, could pressure revenue and OIBDA within our range of guidance.

In closing, let me turn to slide 25 and summarize key takeaways. Despite the challenges we have faced this year, we are encouraged on a number of fronts. We're realizing significant synergies from our merger and acquisitions. We are generating solid free cash flow from operations. We're maintaining a strong balance sheet and financial flexibility. We are enhancing shareholder returns through our share buyback, and we are investing in the business to create long-term value and position Sprint Nextel for long-term profitable growth. Our management team and our associates are very focused on delivering strong operating results and executing on our plan.

I will now hand the call back to Kurt.

Kurt Fawkes

Thanks, Paul, and in just a minute, folks, we are going to take your questions. I want to mention ahead of that that we will have a replay of this morning's presentation available on our website at www.sprint.com. We'll also have an audio-only replay available. You can access that at 1-800-642-1687; or if you're dialing from an international location it is 706-645-9291. The conference codes you will need for the audio rebroadcast is 8563029. We're now going to open the line for questions. Operator, could you please instruct our participants?

Question-and-Answer Session


(Operator Instructions) Your first question comes from Michael Rollins - Citigroup.

Michael Rollins – Citigroup

Hi. Good morning. First, I was wondering if you could provide more details on the current relationship with the cable company that you're working with in the joint venture, in terms of the implications of the spectrum auction as well as in terms of the 4G build that you are planning on? And whether there is any agreements in place where the cable companies can work with you on that?

Secondly, I was just curious if you could talk a little bit about the implications of higher voluntary churn at Nextel and the iDEN base. Does that create some near-term pressure on ARPU because those were historically higher ARPU subs? Thanks.

Gary Foresee

I will take the first question on the relationship with cable in regard to 4G. You may recall when we made the initial joint venture announcement that we gave a path to 4G in that agreement. One part of that path would be based on that venture producing so many customers over a period of time. The other path implying that the cable companies could buy into the business plan and the business case itself.

So where we are at this point is obviously we have made our announcement with the 4G plan and wiMAX and announced at that point in time the partners that are aligned with us to begin that deployment. We're very comfortable, obviously, with our 2.5 spectrum position.

Having said that, we looked at the opportunity with AWS as an opportunity for the right price to continue to look at our spectrum footprint and obviously tagged along with the cable companies as we pursued that. At this stage, we do not have any further agreements in place. Obviously we are just literally as we speak launching our 3G converted service with the cable companies. We have time to continue to work with them should they want to participate in the 4G plan. Again, the AWS auctions could be complementary to that effort. Paul, do you want to talk about the voluntary churn issue?

Paul Saleh

I think the voluntary churn on the iDEN and Nextel was up slightly on the voluntary. I think it was a little bit higher on involuntary churn, and indeed we're seeing more pressure on the ARPU on the iDEN customers that are leaving us versus those that we are acquiring at lower average monthly rates.

Gary Foresee

Michael, I would just add clearly there were several reference points in our discussion about capacity, and we want to be sure that as we continue to invest and build out that we focus on areas that would provide the best capacity and the best service to our existing base of customers; we're very focused on that.

Michael Rollins – Citigroup

Thank you.


Your next question comes from Simon Flannery - Morgan Stanley.

Simon Flannery - Morgan Stanley

Okay. Thank you. Good morning. You talked about the rebanding in a little bit more detail, and there was a phrase in the press release about Phase II being more complex. I was wondering if you could help us understand some of the challenges there? Also, to what extent is the increased churn at iDEN driven by rebanding the voluntary churn? Is it in the rebanding markets versus those, just more generally nationwide? Thanks.

Gary Foresee

Simon, let me take that on. We began implementing the FCC plan in June of '05, and obviously throughout that process we've continued to work very closely with public safety as well as at the 800 megahertz transition administrator which was appointed by the FCC. Frankly, we really have made a significant progress on this incredibly important project.

I will say, though, that as we begin to get into Phase II of the project this is much more complicated and involves the largest public safety system, so we're proceeding with that with great care. As I also mentioned, we have completed the Phase I or are on track to complete by the end of the year, on time and on budget. That should be again, a clear indication that this process has worked, and has worked obviously with the tight coordination between ourselves and the public safety.

But without question Phase II has a degree of difficulty associated with the largest public safety systems being involved. So we obviously intend to meet our obligations to the FCC, and based on our experience we will continue to work with the FCC on that schedule, and obviously the key driver of that going to be the ability of public safety to make those moves as required.

Simon Flannery - Morgan Stanley

Thanks. And on rebanding as a driver of churn at iDEN?

Gary Foresee

As we have gone into an individual market and have pulled spectrum out of a particular market, without question we have to be very focused on the combination of factors including the capacity in at that market, the loading that we continue to put into that market, and the coordination of tuning the network. I mentioned that earlier in one of my notes about overall iDEN performance. So that tight coordination has to occur as we work our way through each of those markets, and done with great care. We cannot have rebanding be a cause of degraded service.

Simon Flannery - Morgan Stanley

Thank you.


Your next question comes from Thomas Lee - JP Morgan.

Thomas Lee - JP Morgan

Good morning, guys, and I just want to congratulate you. These look like very, very good numbers. I have a two-part question. When I parse through the comments that you made plus going through the slides, a couple things really jumped out at me. One is that you had record prime gross adds on the PCS side in the quarter. As we think about the fourth quarter, you're rolling out some new phones including the I 880, the hybrid phone, the RAZR, the CRZR, et cetera.

But at the same time you're phasing in a tightening of the ASL policies. You have a new brand campaign running. You're going to be aggressive on handset pricing, and it is not clear if the expansion of retail distribution is going to occur in the fourth quarter or not.

To me there are a lot of moving pieces there, and I just wanted to get a sense from a strategic priority standpoint, is the priority in this quarter going to be regaining the momentum in terms of market share? Or is it going to be trying to clean up the base in terms of really cleaning up that ASL customer base?

Related to that, just a question that it sounds like you guys are talking about synergies being on track. Can you reiterate whether or not you think 40% OIBDA margins are still achievable within that 18-month time frame? Thanks.

Gary Foresee

I will take the first part and Paul can talk about the synergy piece. I think you really hit most of the components that are in the mix as we have again declared very clearly at the end of the second quarter that we were not pleased for the long run with our customer mix, and we provided some commentary about the continued improvement on CDMA in terms of the prime mix in the third quarter as an indication of our resolve to do that.

The credit tightening that's occurred across both platforms, and then even more significantly in some of the iDEN markets that perhaps were constrained on capacity, is a function of again, managing capacity as we continue to make investments in that platform, and as we work our way through rebanding which was part of the item that Simon referenced. So that is in the mix of managing growth but managing the right growth, and we believe that with the handset lineup that we're introducing and with the focus that we're putting particularly on third party channels, which in the past have been very focused on prime and very focused on prime business iDEN, all of that suggests that we are again very clearly focused and resolved on improving our customer mix.

We believe these actions, including the positioning of our brand campaign that talks about the power of our network, that talks about the price value equation that Sprint Nextel brings, all of those are supporting that resolve to improve that mix.

We will obviously watch this very carefully in the third quarter. We saw those moves start to have effect. We, as Paul indicated, are making investments in this strategy in the fourth quarter, and ultimately reducing churn, having some of that low end ASL that was high cost, high churn move out of the business, certainly was part of the impact in our third quarter, and will be in the fourth quarter. But we believe these actions will produce the desired results as we look into fourth and first quarter.

Paul Saleh

The comment on the synergies, we're actually seeing accelerated synergies as we had indicated earlier in the year that the second half of the year would have more synergies, and we feel like we're on track, if not ahead of schedule, on the synergies side.

As Gary mentioned, we are committed to improving our customer mix and to reducing churn. As I highlighted in my presentation, particularly on slide 21, the number of actions that we are taking that are likely to pressure OIBDA margins in the near term, but our long-term objective is to regain leadership on the OIBDA margins and be improving them from levels that we've had historically. So we haven't committed to a timetable for the 40%, but we'll keep you posted on our progress.

Thomas Lee - JP Morgan

Great. Very helpful, guys. Thanks.


Your next question comes from Rick Prentiss - Raymond James.

Rick Prentiss - Raymond James

Good morning, guys. First, thanks for being so upfront in addressing how you're going to fix these problems. Questions I have are on the handset side. On the cable TV joint venture, you mentioned you're getting very close, even as we speak, maybe getting ready to launch some of those pilot markets. Where do you stand as far as handset selections for the cable TV joint venture? Will you have the combination Wi-Fi CDMA phones available for it?

Gary Foresee

We are launching a common device, and it is an EV-DO device across the four cable companies and across the specific markets that are in this pilot, meaning use of friendly customers at this stage, as we contemplate the broader market launch. So the first round of devices are again, common. There will be a few devices that will be available, but for uniformity across our platforms and in working with the cable companies, there won't be a different device type, if you will, and one Cox market versus a Time Warner market, Comcast, and so forth.

EV-DO RevA devices are part of the road map plan, and when those devices are available, you would expect us to have VoIP capability, and we have worked with the cable companies on the design of that device. So the in-home experience would be part of the equation at that point in time.

As I mentioned, in the current content that's on those devices, if you were in one of these pilot cities you would see local content. You would see the screen being displayed, brought to you by that particular MSO with local content which again is part of what we think is different about this particular offer, and why we spent so much time on the back office and on the integration of our systems to provide a better and different kind of customer experience.

Rick Prentiss - Raymond James

Great. My second question is on the interesting point you made about data to the iDEN subscribers. When you start selling the hybrid phones, CDMA, iDEN, how do you anticipate encouraging them to sign on for data? Are you going to push the Power Vision? Are you going to push Vision or how do you imagine ramping up the iDEN side of things on data ARPU?

Gary Foresee

We're obviously very excited about that opportunity, and the hybrid phone gives us the best of both platforms. It gives us obviously the nation's best push-to-talk capability on iDEN and the nation's best voice coverage and mobile broadband associated with EV-DO and as we deploy EV-DO RevA. Rick, I think you're right on. This will give the historic iDEN base of users the opportunity to sign on for the packages of Vision and Power Vision as we deploy EV-DO devices, and we will have a combination of offers and push and pull that will make that very attractive to those customers to consider, but also to have usable applications and usable services that will make them very attracted to that customer base.

Rick Prentiss - Raymond James

Good luck, guys.


Your next question comes from David Barden - Banc of America Securities.

David Barden - Banc of America Securities

Hey, guys, good morning. Just maybe on the ARPU side of things, one question would be as you look at the ARPU trends and the sub mix management that you're trying to do, we have we had at least one guy report that they had some year-over-year improvement in ARPU. You did talk about some of the sub experience you're having in the different brands or legacy brands. Can you talk about some of the different ARPU experiences you're having there? Is the pressure on ARPU really entirely driven by the iDEN base deteriorating or is it some kind of blend there?

The second question would be again just revisiting the rebanding topic, some of the filings with the FCC suggest that you guys might be look to go push that out another couple of years which would give you a little bit more breathing room on the spectrum management issue and the CapEx issue. I wonder if you can talk to that point as well. Thanks.

Paul Saleh

Let me address the ARPU first. As I mentioned, I think it is much more the pressure is coming primarily on the iDEN customer base, particularly on legacy plans and as they migrate they tend to migrate to more current plans that typically have lower monthly revenue charges. I would say typically also on the iDEN you did not have the data growth that you have experienced on CDMA, and again the hybrid phone will enable us basically to see hopefully more growth on data to offset the traditional voice decline.

Also, our focus on prime customers is directed at people who would have, as you well know, very low churn but lower ARPU. I would say on the CDMA side actually the experience on ARPU has been really very good, where data has more than offset the decline on the voice side. So I would say in the near term ARPU pressure will be coming on the voice particularly on the iDEN side.

Gary Foresee

David, the second part of your question, again, we intend to fully meet our obligations under the FCC's decision, but I think we also now have experience of almost a year-and-a-half under our belt as we work through Phase I, and as we work with public safety and some of the larger agencies and some of the larger public safety systems, it could in fact turn out to be prudent that additional time will be required. But I also don't want to predict or preempt any discussions that may be required with the FCC that would make that determination.

We are full stop planning for Phase II, and we'll continue down the path of meeting our obligations.

David Barden - Banc of America Securities

Thanks, guys.


Your next question comes from David Janazzo – Merrill Lynch.

David Janazzo – Merrill Lynch

Good morning. Can you discussion how you are thinking about the movement of minutes and customer handsets from iDEN to CDMA over time? That includes the dual phone all the way through QChat over the next couple of years.

Gary Foresee

We tried to flavor that throughout the discussion this morning and on several of the charts to describe that, (a) we are on track with the technology road map that would allow that movement of iDEN traffic, particularly as we just talked about in the last couple of questions around data to the CDMA platform. So the enablers of that have been extending the CDMA footprint so it maps the coverage of iDEN; very important, obviously, for that to be the case. Obviously with the significant work that Nextel had done with custom network solutions, again, that will be a continued focus to be sure that we match the footprints.

The second has been the development of the hybrid phone when frankly we're running a little bit ahead of what we might have thought a year-and-a-half ago about the availability of that phone and the quantities that will be available. That will be a very significant part of this whole discussion around capacity management, but at the same time making a data experience available to the iDEN base, so all of that again is part of the plan.

You could expect us to have no less of 4 million plus hybrid devices in our distribution channels in '07, so that would give you some range of magnitude about the opportunity for us to position that device as the best of both networks, redundant networks, if you will which we think will be a very powerful marketing message.

The final piece would be the availability of QChat, which as you know, is the development we've had with Qualcom over the last three years. That would position the same performance, the same latency, the same characteristics that you see today on iDEN, having that available on a proprietary basis to us on CDMA. That development is on track. It is in our labs. It has been tested. I have seen it and have used it, and as we deploy EV-DO RevA, that will be the technology that application will reside on. We could expect to see EV-DO RevA devices with the QChat capability as we get into '08.

We have also said and been very clear and very clear to our customers, very clear internally that we're going to continue to invest in the iDEN platform for coverage and capacity. We want our existing users to have the best experience, so this will be a case of running past the finish line to be sure that our iDEN base has the opportunity to continue to have the best experience. We have indicated publicly that timeline is out in the 2012 timeframe when we believe natural migration in handset changes in the opportunities to position data would have moved a significant amount of traffic off the iDEN network by that period of time.

David Janazzo – Merrill Lynch

Thank you.


Your next question comes from John Hodulik - UBS.

John Hodulik – UBS

Can you give us more detail around your credit tightening policies? How far along do you think you are at this point? Are you 90% of where you need to be? Just trying to get a sense for how those changes are going to affect gross adds as we head into the fourth quarter and the first quarter, especially with some of the other issues like the increased branding and advertising that might increase your gross adds.

Secondly, Paul, you made a comment towards the end of your remarks where you said that some of these issues, including seasonality and some of the other things you're doing to improve churn could pressure revenue and EBITDA within the guidance range in the fourth quarter. I don't want to put words in your mouth, but are you suggesting you might be at the low end of the guidance? I am trying to get a better sense for what you're saying and where margins are going to be in the fourth quarter and maybe into the first quarter. Thanks.

Gary Foresee

John, it is Gary. I think Thomas asked the question earlier about the number of actions that have been put in place, and credit tightening is one of those actions. We took action at the end of the second quarter specifically on the iDEN platform, and that was again against the dynamic of capacity, as well as ensuring on the iDEN platform that we focused that platform more so on the historic book of business, the prime, postpaid and business customers, reenergizing the third party channels that are specifically to get at them.

So the iDEN credit tightening occurred very significantly, and then across both platforms on the first of October we took additional credit-tightening action, so that again was reflected in our results on the iDEN platform in the third quarter, and will be further reflected as Paul already mentioned, on the fourth quarter, offset by again a very significant set of proactive actions to stimulate the handset programs with the new lineup as well as stimulation we're doing in our channels, particularly third party.

So again, a couple of offsets to what otherwise would have been constraining on the growth side and obviously we expect that to have a positive impact as we move into '07.

Paul Saleh

Let me just elaborate also and build on that. As we said, we're constraining our growth near term because our focus is on improving the customer mix and the quality of the customer that we are acquiring. In addition to that, you heard us also say our churn will be relatively flat in the fourth quarter, so if you take these two things together, there is certainly expectation, we indicated that near-term gross adds and net adds will continue to be under pressure.

We're making the investments, as we have indicated, to reinvigorate our indirect channel and the growth there. While these are still success-based investments, we expect investments to be made starting in the fourth quarter. We have the handset pricing changes to stimulate, to go after a prime type of customers.

This EV-DO RevA rollout and the EV-DO in 200 million POPs for EV-DO and 40 million POPs by year end is going to imply an increase in network costs near term as we ramp up services on those type of technologies.

So my comments was clearly suggesting that we are going to see pressure on revenue and OIBDA near term, and we haven't guided where it would be but just to say within the range we have some investments that we need to make near term and into '07 to help position us for long-term value.

John Hodulik - UBS

Okay. Thanks. Makes sense.


Your next question comes from Chris Larsen - Credit Suisse.

Chris Larsen - Credit Suisse

Hi. Thanks. A couple questions. First on the hybrid handsets, could you remind us if those are 1 X or EV-DO?

Secondly, as you have been putting out the hybrids, is there any impact you have seen to date, or is it too early to tell, of incremental data revenues you might be getting from those customers on the dual mode phones?

You commented that Boost is seeing increased competition and pricing as well. Is there any sense you might pull back, given that the iDEN network is a little bit capacity-constrained, particularly in some markets?

Lastly, where do you stand with the remaining PCS affiliates, Sprint PCS affiliates?

Gary Foresee

Okay. Let me take those maybe in reverse order. The PCS affiliates, IPCS being the largest, and you're aware of the litigation process that's been underway, but that is the largest. The remaining affiliates that are still part of that network are much smaller than that, so there has been no plan, no activity that would have again moved us toward changing the status with IPCS at this point in time.

The comment about data boost is clearly a reflection as disruptive carriers start to enter new markets then obviously there is a new competitor in town that goes along with that, and we have to be sure that we're flexible in creating the right type of offers and packages to compete against that. Certainly our comments about credit tightening in some of the iDEN markets where we have again managed capacity, if you will, apply to Boost as well as to the core iDEN business. You should assume, in fact I think we were specific on one of the charts, that we have managed growth based on some of that capacity management if you will.

And on the hybrid phones, the phones that we have positioned thus far have been through our retention channels, through our service organizations. They are 1X phones. At this point in time the DO phones will be out late first quarter, early second quarter. Really, Chris, too early to call on the data side yet, but that is, again as we've talked about, a very significant opportunity to have data on a very high percentage of those devices as we move those across.

Paul Saleh

Let me add one data point for you. We talked about data on CDMA to be over $10. iDEN is typically half of that. There is a great opportunity to grow that amount on iDEN.

Gary Foresee

And again, that's why we're being so, currently anyway, aggressive with our hybrid phone, the numbers we've been talking about. It is the first we have talked publicly about that type of number, but we're very convinced that is the right thing to do for growth as well as for positioning service with our customers.

Chris Larsen - Credit Suisse

Thanks a lot.


Your next question comes from Phil Cusick - Bear Stearns.

Phil Cusick - Bear Stearns

Thanks for taking my call. Wonder if I can follow up on a couple of things. Last quarter there was a bit of an issue around existing iDEN subs going from high plans to low plans. C an you talk about any further shifts there? Should we expect that to happen over time as the business customers see lower pricing from the new structure?

Second, if we could talk about the needs for EV-DO RevA in regards to QChat, should we expect to see EV-DO RevA across your entire network and partners networks before you can launch QChat in volume? Thanks.

Gary Foresee

I think we had a comment in perhaps Paul's presentation about the migration or conversions which we did highlight as part of our second quarter results. One of the issues in terms of ARPU and revenue impacting. But I think we also said that we have moderate rated that back and that conversion rate is back to February levels. I think that is the piece of information that's pertinent.

You are right on EV-DO RevA that will be deployed across the entirety of the network. I won't say that every POP has to be covered before we would launch EV-DO RevA QChat devices, because there could be some targeting and focus to that; but for the best customer experience we would have that deployed.

As you already heard, we are already launching EV-DO RevA cards because they're backwards compatible to EV-DO, so our customers when they are in an EV-DO RevA market are already going to be getting the better experience from that network, but yet backward compatible to EV-DO as we speak.

You are right that in 2008 EV-DO RevA and QChat are synonymous with high performance push-to-talk being on that platform.

Phil Cusick - Bear Stearns

FYI, I know Paul referenced a couple things in his slides, but as far as I can tell the slides still aren't on the website. Thanks.

Gary Foresee

We'll double check. We have them I think pulled up in our room here on the web. We'll check if there is a problem.


Your next question comes from Richard Klugman - Prudential.

Richard Klugman – Prudential

Thank you. Good morning. You touched a bit a question or two ago about prepaid. You also said during the presentation the MVNOs are doing okay, notwithstanding the press about ESPN Mobile. I am just wondering, given the Boost results having higher churn, and your commentary about pricing in that environment since the MVNOs are largely on the prepaid side as well, is there a race to the bottom going on, on prepaid right now? Should we be concerned going into the fourth quarter and in 2007 that the economics of that business are deteriorating? Thanks.

Gary Foresee

I don't think that's the case at all. Each of our MVNOs are very unique in terms of their market position, and that obviously ranges from Virgin Mobile to Qwest to EMBARQ to MVIDIA, to Helio, to Disney; each has their brand, their distribution strategy and are targeted in their own regard.

I don't think you should take any of these comments around different pressures that show up in different segments as any correlation to what those companies will experience as they position themselves to be successful.

As it relates to Boost, the Boost results again are a function of the two dynamics we talked about earlier. One, our own constraining of that product line based on, again, the iDEN issues we already talked about; and, two, it is very clear when new competitors come into markets where Boost has already been in place, there is an impact just as there is across the industry when a new entrant comes in.

I don't think, again, Richard, those points need to be correlated that there is, to your term, a race to the bottom here. That ESPN decision was very specific to them and to their business needs, and there shouldn't be any other correlation from my perspective, anyway.

Richard Klugman – Prudential

That's fair. There are a lot of moving parts here. Just one quick follow-up. A lot of questions on the hybrid phones. Could you clarify for us how many are out in use today, how many there will be at year end, and I think you said mid-year or so when you will go from 1X up to 3G on the phone availability, is that right?

Gary Foresee

Richard, we'll have by the end of the year 700,000 roughly in the distribution system. Don't correlate that to how many will be deployed and in customers hands, but with that number obviously those aren't going into every distribution channel. The first priority is into our service channels where we can use that to as a clear device to get in the hands of some of our higher value, best customers because we think we're going to be producing a unique and better experience. So there are a few thousand out at this point in time, and that ramp occurs based on product and device availability. The primary focus in the fourth quarter is into our service channels. We'll start to see that into some of our direct channels and indirect channels by the end of the year.

The 1X devices, again, are available now and EV-DO type devices will be available I believe late first quarter, early second quarter.

Richard Klugman – Prudential

Great. Thanks. Good luck on those initiatives.

Gary Foresee

Thank you, Richard.


Your next question comes from Tom Watts - Cowen & Co.

Tom Watts - Cowen & Co.

Congratulations, guys. In terms of getting the quality, you have a number of goals for the existing base and getting quality in line. You mentioned Q4 we are likely to see churn flat and improving after that. Do you have a sense of how much more the base is likely to churn out? Is there a target there? Do you have certain customers you're expecting to see come out of the base?

Gary Foresee

We have internal targets including where we want churn to go in 2007, and I think by our tone and by the actions that you heard us describe, the headline ought to be we want to get our churn to competitive levels, and that implies to Cingular and Verizon, in that direction anyway, with initiatives we have for 2006/2007.

I think we can't sit here and call today at a level of precision, except that obviously it is implied in our forecast and our guidance how all of those pieces land in terms of the mix. But we know we have seen that effect on the CDMA platform, and we will see the effects of the credit tightening and the moving out, if you will, as we've already seen in iDEN over the last couple quarters of the lower value ASL customers that we won't have in our base going forward, based on the acquisition strategy.

So that process has been underway for now a couple of quarters on the iDEN platform and for CDMA implemented credit tightening in October, again to take out that lower value set of customers that were high churn, high cost and be sure we're attracting with our acquisition strategies a different mix going forward.

Tom Watts - Cowen & Co.

Also could you just comment briefly on the environment you're seeing in the long distance business and how you are responding to that? And if we should see any change in trends that some of the other competitors are seeing there?

Gary Foresee

I think Paul hit it sequentially. If you take out the sale of our conferencing business and the move out of our UNIP business last year, we were virtually flat sequentially and down 3% year-over-year. I think what you're seeing at least in our book of business on long distance, is again the follow through of the strategy. We have a very focused strategy. It is concentrated on IP and MPLS. It is concentrated on moving customers off the legacy data platforms of frame and ATM toward that next generation product set.

We aren't interested in pursuing standalone switch voice long distance if it doesn't have a clear tie to wireline data or wireless voice and data. So a very targeted strategy we have been on for a couple of years now, and obviously our results are also bolstered by a continued significant ramp with our cable VoIP relationship.

We are executing against that strategy, this long distance platform is a very important enabler of our wireless strategy and an important part of our convergence message to our customers as wireless and wireline become even more connected based on the applications becoming available.

Tom Watts - Cowen & Co.

Great. Thanks very much.


Your next question is from the line of Will Power - Baird.

Will Power – Baird

Thanks for taking the question. You spent a fair amount of time talking about plans for marketing with Power Up and there are obviously a number of initiatives to reduce churn across the organization. I guess I am trying to better understand what's going to help you improve the gross add productivity in the iDEN base? I know you alluded to better incenting some of the third party distribution channels. Should we expect a pick up in marketing for Nextel specifically to help boost that? Are there other levers there as well?

Secondly, as you look at the higher iDEN voluntary churn, I wonder if you can give us any color or if you have much visibility as to where those customers are going. Are they leaving the push-to-talk product altogether, are they going to competitors like Cingular?

I guess along those lines are you seeing a meaningful increase in that competition for push-to-talk? Thanks.

Gary Foresee

Let me take a shot at that. As we described already on the credit tightening, the real issue with iDEN is to again limit the consumer-oriented customers that have been coming in via ASL programs and limit our continued exposure to that high cost, high churn, less value base. Those are conscious actions, and obviously those have impact on gross adds as we work our way through that change.

Changes that are occurring are taking place, as we've already talked about, in the third party channels so reinvigorate them pointed towards a different profile of customers; incentives that are in place in direct and indirect to ensure that we pay as much attention to retention and incentives associated with that as acquisition to ensure that we retain the customers that have been such high value.

The Power Up campaign again is point as much to our customers to say we have the most powerful network, we have the best value. We think that message again is important to convey along that way.

So I think all of these actions are in motion, and we do want to regain traction on the iDEN growth side, but we want to do that by very specific targeting at the right kind of customers, and we think the plans we have in place are beginning to do that.

Paul Saleh

If you look at the churn on the iDEN side, I think you can't really just generalize it. You have, as we're seeing some people where some prime customers on iDEN even leave us. I would say to you that if they're leaving us, it is not necessarily because push-to-talk is no longer relevant, but it may be for another reason, whether it is coverage related or quality of the network related. We intend ultimately to win those customers back as we improve our network and as we offer some of those new services, whether it is on CDMA or on a combination through the hybrid phones.


Your final question comes from Tom Seitz - Lehman Brothers.

Tom Seitz - Lehman Brothers

I have one on gross adds. If you are tightening credit policies on CDMA and gross adds at iDEN were disappointing, why were gross ads flat with second quarter and up year-over-year on a pro forma basis? Is this good news, because they're coming from the prime CDMA customers? Are they prepaid customers? If you could talk about that, I would appreciated it.

Secondly, one more on rebanding. You talked about sending SWAT teams in advance of pulling down channels and retuning the cell sites and splitting them where you need to. Has this had any positive impact? I guess the question is, is the voluntary iDEN churn still coming from the markets where you moved channels last quarter or is it in new markets?

Gary Foresee

Tom, on the gross adds question, I think as you look at CDMA, you do have the effect of the affiliates coming in to those numbers, and that may have some impact on year-over-year comparisons.

Tom Seitz - Lehman Brothers

I thought it said pro forma in the release. Maybe I am wrong.

Gary Foresee

Depending on which part you're looking at. In my comments I indicated that on CDMA we w ere flat sequentially, which again should be an indication that that platform has held up. Our issue on CDMA and iDEN has been less about gross than it is about net, and that's where this whole discussion has been focused on. I am sorry if I missed part of that question.

On rebanding, I think we've worked our way through that, and I indicated that the customer experience and the capacity management is all tied together, and as you pull spectrum out, if capacity hadn't been managed to support our highest value customers, then there could be some impact to that.

Retuning of the network is always an important part of that, and we have retuning efforts underway and in essence a task force approach that we've taken to be sure that as we go through a rebanding activity in a market, that the retuning that can go along with that and the capacity planning with that, including the actions we've taken to constrain growth, are all coordinated to ensure we have the best customer experience.

Tom Seitz - Lehman Brothers
A quick follow-up. Are the markets where you have done this prep work showing significantly less voluntary churn than perhaps the markets that you just went out and thought because the lab test worked, you wouldn't have capacity issues?

Gary Foresee

Tom, I think at that level it is maybe too early to call. I indicated that we are making in '06 and will in '07 investments in the iDEN network around capacity to be sure that we don't want to be in a constrained growth mode obviously, and rebanding plays a part of that. I think it is too early to call by market, and as we get information we'll certainly be open about that, but too early to call at this point in time the cause and effect of rebanding, capacity management and retuning of the network. But as we get information, we'll certainly cover that off on these forums.

Paul Saleh

One thing I will say though, when we have done the retuning in some markets, the preliminary results on the quality of the network is improved.

Tom Seitz - Lehman Brothers

Good. That's what we want to hear.

Kurt Fawkes

Thanks, everybody, and that concludes our call. If you have any follow-ons, feel free to give us a call in Investor Relations today. Thanks, everybody.


Thank you for participating in today's Sprint Nextel third quarter 2006 earnings conference call.

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