Sprint Nextel Inc
Q4 2005 Earnings Conference Call
February 22, 2006
8:30 a.m. Executives March 1, 0000 ET
Jason Armstrong - Goldman Sachs
Michael Rollins - Smith Barney Citigroup
Blake Bath - Citigroup
Colette Fleming - UBS Warburg
David Barden - Banc of America Securities
Good morning. My name is Judy and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprint Nextel fourth quarter 2005 earnings conference call. (Operator instructions) Mr. Fawkes, you may begin your conference.
Thank you and good morning everyone. Thanks for joining us on our call today. For the format this morning, Gary Forsee, our CEO is going to kick off the discussion and then Paul Saleh, our CFO will review our corporate performance including key balance sheet items and cash flows. Len Lauer, our Chief Operating Officer will update you on the integration progress and discuss the wireless and long distance businesses in some detail. Then Dan Hesse, the President of our Local Business will close out our prepared remarks with a discussion of his unit's performance as well as an update on the spin-off with that is upcoming in the second quarter. We'll finish our call with some questions. I would also note that Mike Fuller, the CO of our Local Business; Tim Kelly of our Consumer Business; and Mark Angelino of our Business Unit are also going to be joining us and available for the Q&A portion.
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 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 our non-GAAP performance and liquidity measures to the appropriate GAAP measures for the fourth quarter and for the full year 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. Now, here is Gary.
Thank you, Kurt and good morning to everyone. I'm very pleased with our accomplishments in 2005. Sprint Nextel finished the year with solid metrics and financials, an improved balance sheet and we continue to make great progress against the myriad of merger integration plans, including the impending spin-off of our local business.
We now turn to slide 4. The main attribute of our Company which sets us apart from other large cap telcom companies is our strong growth rates. For the 12 months ending December 31, 2005, Sprint Nextel generated pro forma net operating revenues of $44.1 billion and adjusted OIBDA of $14.2 billion. This reflects a pro forma increase in our top line of 8% versus one year ago, which leads all other large cap telcom service providers.
Our pro forma adjusted OIBDA grew by more than 9%. We expect to continue to deliver superior growth rates with the impressive assets we've assembled, and the innovative services that we are bringing to the marketplace. Full year adjusted OIBDA less CapEx was $7.5 billion on a pro forma basis, 13% higher than a year ago.
Our substantial cash flows have allowed us to reinvest in the business, purchase assets which enhance our growth prospects and significantly improve our leverage ratios. Based on this operating strength, and the assessment of our future cash requirements, we now expect to pay a nominal dividend following the spin-off of our local business to shareholders. The amount of the dividend will be determined by our board. The board will also consider other means of returning cash to our shareholders following the local spin-off in a manner which is consistent with the tax-free nature of the spin-off.
Consistent with our industry peers that have recently been involved in merger activity, we've introduced a new measure in our release this morning which moves the effects of special items and purchase accounting driven amortization. For the full year pro forma adjusted EPS before special items and amortization expense was $1.41 or 36% higher than one year ago. In the quarter, pro forma adjusted EPS before special items and amortization was $0.33 up 6% from the prior year and was partially impacted by some one-time items in the quarter that Paul will discuss.
If we now turn to slide 5. In our first full quarter as a combined Company, our results were in line with, or surpassed, our guidance. We posted solid wireless subscribers adding approximately 1.4 million direct subscribers and approximately 650,000 MVNO and affiliate subscribers. This wireless subscriber growth is driving strong revenues, adjusted OIBDA and free cash flow growth.
At the same time, we continue to execute against our merger integration plan. Naming all employees of the Company, consolidating benefit plans, re-branding the majority of our retail stores, migrating long distance traffic into our IP backbone, and selecting vendors who will continue to differentiate Sprint Nextel and to support the continued scaling of our business.
We closed two affiliate transactions in the quarter, IWO and Gulf Coast. Integration of these PCS affiliates is running smoothly and we launched a Day One customer experience in these markets within four weeks of the close date. We also announced in the quarter three other transactions -- Alamosa, Enterprise and Nextel Partners -- that will enhance our growth profile.
We continued our product and service leadership in the fourth quarter by launching new, differentiated high speed mobility data services which support live television and full music downloads through the Sprint Music Store. Initial market acceptance of these new services has been above our expectations.
We continue to look at a very bright future for mobility services which now, for Sprint Nextel includes a breakthrough joint venture with cable operators to develop and deliver converged services across fixed and mobile broadband platforms. We expect to launch these new services in a handful of markets beginning in the second half of this year.
Our preparation for the spin-off of Sprint Nextel's local phone business is progressing on schedule and you'll hear more about that from Dan. We expect this to occur in the mid to latter part of the second quarter and this will be a very significant milestone in the repositioning of Sprint Nextel as the mobility platform in the communications sector. At the same time, it will allow EMBARQ, our new local company, to have a laser-like focus in providing a full suite of service offerings and great customer care in the markets that it serves.
I hope that you can see that we had a lot on our plate in the fourth quarter and we accomplished what we set out to do. I'm sorry we're a bit late in getting this news to you, but closing the quarter and the year as a merged Company was a very important event to do the right way, which we have done.
We are continuing on our game plan and continue to execute against our plans for this year. We're very confident in the commitments that we are making for 2006. I'm personally looking forward, as I know our team is, to meeting with many of you at our investment community meeting on March 7th in New York when we provide a full airing of our plans for this year and this repositioning that is well underway. Now I'll turn the call over to Paul.
Thank you, Gary and good morning, everyone. As you just heard, Sprint Nextel delivered solid results in 2005 and we met or exceeded the guidance that we provided to you previously. Sprint Nextel reported $44.1 billion of total revenue for 2005 on a pro forma basis. Wireless revenues of $31.8 billion were up 13% which is at the high end of our guidance, as we once again outpace the industry. Local revenues of $6.5 billion were up 2% for the year. Long distance revenues of $6.8 billion were down by nearly 7% from the prior year.
Sprint Nextel reported pro forma adjusted OIBDA of $14.2 billion, up 9.4% compared with the prior year. Pro forma adjusted OIBDA margin was 32.2% of revenues, a 50 basis point improvement over the prior year. Wireless adjusted OIBDA was 14% higher in 2005. Local grew adjusted OIBDA by a 1%. Long distance was 9% lower.
Full year pro forma capital investments were $6.7 billion, before re-banding capital, and they reflected an accelerated purchase of network equipment to capture additional vendor discounts. CapEx also includes spending on newly acquired affiliate territories and hurricane-related spending in the long distance segments.
In the fourth quarter, Sprint Nextel added 1.4 million net direct subscribers with 746,000 from post-paid and approximately 638,000 from Boost Mobile. The Company ended the year with 49.6 million total subscribers inclusive of affiliates, wholesale, and Nextel partners.
Looking at our fourth quarter results, Sprint Nextel reported $3.1 billion of OIBDA which included $340 million of merger-related costs and $83 million in restructuring and hurricane-related costs. On an adjusted basis, OIBDA was $3.5 billion for the quarter, a 7% increase over the pro forma amount from the prior year. Adjusted OIBDA margins were 31.3% of total revenues.
For the quarter, we reported net income of $973 million or $0.33 per share after adjusting for merger-related costs, special items, and amortization costs.
Sprint Nextel ended 2005 with a very strong balance sheet and considerable financial flexibility. Cash and marketable securities were $10.7 billion at the end of the year. The Company also has access to approximately $4.5 billion of committed, but undrawn, credit. Gross debt at year-end totaled $25.7 billion.
Sprint Nextel is maintaining a solid investment-grade profile. Debt to annualized OIBDA is approximately 1.8X and our average cost of debt is 6.8%.
The Company ended the year with $103 billion in assets and $52 billion in shareholder equity. For the year, Sprint Nextel generated $5.4 billion in free cash flow on a GAAP basis, which includes $1.4 billion spent to acquire three PCS affiliates: US Unwired, IWO, and Gulf Coast. In 2006, we plan to initiate a commercial paper program which should further enhance our financial flexibility.
Each of our segments is generating positive free cash flow from operations. Wireless generated $4.6 billion of pro forma adjusted OIBDA in excess of capital spending. It is a 15% increase over the prior year. Long distance generated $647 million of OIBDA less CapEx, while continuing to invest in the growth areas of the business, including MPLS and VoIP. The Local segment reported $2.1 billion of adjusted OIBDA less capital spending. For the full year of 2005, the Company delivered $7.1 billion of pro forma adjusted OIBDA less CapEx, an increase of 7% over the prior year.
As Gary mentioned, what sets Sprint Nextel apart from other large cap companies is our strong growth profile. We are further enhancing our growth profile. We recently completed the acquisition of Alamosa and we announced the acquisition of Nextel Partners which is presently awaiting FCC approval. These two transactions will increase our subscriber base by approximately 3.5 million and would have added approximately $900 million of OIBDA in 2005. With the completion of the Alamosa and Enterprise acquisitions in 2006, Sprint Nextel currently controls more than 90% of it's CDMA network and distribution channel and we will soon control 100% of iDEN assets covering 270 million paths.
Additionally, the spin-off of Sprint Local Business is on track to close in the second quarter. Shareholders of Sprint Nextel will receive their proportionate share in EMBARQ and Sprint Nextel expects to receive $6.6 billion in gross proceeds from this transaction and about $700 million of mortgages will go to EMBARQ. The separation of the local phone business will enable Sprint Nextel to focus on the growth segments of the market and will allow EMBARQ to better serve it's customers.
So we are very excited about the outlook for 2006. Our guidance for 2006 excludes the Local Business and Nextel Partners, but it does include 11 months of results from Alamosa and Enterprise Communications. We expect to generate net operating revenues of $41 billion or more in 2006. Sprint Nextel's Wireless Business is expected to continue to outperform the industry by delivering a high single or low double-digit revenue growth. Alamosa is expected to contribute $800 million, net of inter-company eliminations. Those eliminations include removing any roaming revenues and the 8% franchise fee. Long Distance revenues are expected to decline at mid to high single-digit rates.
We expect full year adjusted OIBDA to be approximately $13 billion. We expect wireless OIBDA service margins to increase by about 200 points, and long distance margins to be in the low teens, similar to the levels we achieved in the fourth quarter.
Capital spending for the full year is expected to be about $6.4 billion and that includes re-banding capital of about $600 million. Total re-banding costs for 2006 are expected to be about $1.4 billion and include the $600 million in capital and $800 million in costs that will be recorded at Spectrum Assets.
We remain on track to deliver on our $14.5 billion of MPV synergies and we are well on our way towards our goal of achieving a 40% OIBDA margin by 2008. We expect our tax provision in 2006 to be approximately 38% and our cash tax rates to remain in the 10% to 15% range as we continue to utilize our net operating losses which were about $7 billion at year end.
Now let me update you on the uses of our excess cash. As we mentioned, we expect to continue to generate strong free cash flows from operations and we have ample liquidity to fund our acquisitions of Alamosa and Partners. We expect to maintain a solid investment-grade profile. The proceeds of the spin-off EMBARQ can be used to further reduce our debt.
Given this financial strength, we expect to pay a nominal recurring dividend after the spin-off. As Gary mentioned, the amount will be determined at a later date by our board. In the future, the board may consider additional cash distribution such as stock buybacks and special dividends. While no plan is in place at this time, any future cash distribution plan must comply with the tax restrictions from our spin-off.
In summary, we have the right assets to win in the marketplace. We're building on our track record of meeting or exceeding expectations. We are on track with our mergers. The upcoming spin-off of the Local Business will enhance our growth profile and we are very excited about our prospects for 2006. Now, I'll turn the call over to Len.
Thank you, Paul. I am pleased to be with everyone this morning. I'd like to start with a discussion of our integration process which is found on slide 15. After the close of the merger on August 12th, we immediately began to execute on the detailed plans that had been drawn up for combining the companies. As a result, our integration is off to a very fast start. We still have much to do, but we have made great progress.
For starters, I'm pleased to report that in 2005, the total operating and CapEx synergies that we achieved were approximately $730 million. This exceeded our guidance of $500 million to $700 million. We are also tracking well on realizing our revenue synergies. These synergies are focused on maximizing the cross-selling opportunities to our very large customer base.
EVDO connection card sales, for example, are expected to grow dramatically throughout 2006. We already exited 2005 momentum as the sequential growth in connection card sales was 35%.
In 2005, our merger and integration costs of approximately $965 million were within our guidance of $800 million to $1 billion. The majority of these costs flow through the income statement and a portion of them are recorded as part of the purchase accounting related to the merger. Key synergy opportunities of this merger involve capturing the benefit for the size and scale of our network assets and the buying power of the combined Company.
We have made significant progress moving iDEN traffic off of other IPXs to Sprint Nextel's assets. We're also on track to renegotiate 1,000 cell site leases by the end of 2006, which will lower our lease expense. We've made progress in integrating key vendor relationships and consolidating IT applications. We have selected a single wireless billing and integrated customer care vendor -- Amdocs and we have a transitional relationship in place with Convergis. The migration between billing and customer care systems will be done in phases and is expected to be completed by the end of 2007.
The first migration is expected to begin in the third quarter of this year. Over the next three years, this migration is expected to save roughly $375 million which is above our initial synergy expectations. We have a high degree of confidence in our ability to complete this migration smoothly and on time, as we are migrating subscribers onto an existing billing and care system.
We've also built a detailed road map to rationalize hundreds of IT applications. Sprint Nextel has an IT portfolio of more than 700 applications. Our goal is to reduce this to roughly 400 applications, with our 2006 plan calling for the elimination of nearly 80 applications.
We're also simplifying our new handset portfolio. At the close of the merger, we had about 65 handsets available for sale. We've already reduced that number by over 30% to approximately 40 handsets.
We have implemented a single, unified compensation package for all employees working in the Wireless and Long Distance segments. This new package became effective on January 1st of this year. The Business Solutions sales team launched a single compensation plan to the entire sales force that included compensation incentives for both iDEN and CDMA platform sales.
As we head into the next phase of our merger integration efforts, we are rationalizing channels, systems, products and organizational design. As a result of these actions, it is expected that we will require about 4,500 fewer positions by the end of this year.
We also have certain areas of our business that we continue to grow, resulting in approximately 2,000 incremental jobs in 2006. These new positions are in customer facing units, revenue producing groups, supporting the rapidly expanding VoIP business, and in areas of investment such as innovation and the wireless joint venture with the cable companies.
Excluding Nextel partners, the net result is that our overall head count entering 2006 of approximately 60,000 will be reduced by about 4% by year end. These head count reductions are reflected in our target of about $1 billion in operational synergies for 2006, and our overall synergy target of $14.5 billion.
We've also made significant progress integrating U.S. Unwired, Gulf Coast and Independent Wireless One. These were the three affiliate acquisitions that closed by year end 2005. We are well along in building and implementing a detailed integration plan for Enterprise and Alamosa, the two affiliates whose acquisitions closed in the first quarter of this year. We've also begun planning for the integration of Nextel Partners. This acquisition is expected to close in the second quarter of 2006. We look forward to the March 7th investor meeting to give you more insight into the key synergy initiatives we are aggressively pursuing this year.
Now turning to slide 16, let's talk about our Wireless performance. 2005 was a very strong year for our wireless business. While planning and then closing one of the largest mergers ever in the domestic telecom industry, our Wireless business continued to produce solid results. In the fourth quarter, Sprint Nextel added just over 2 million new subscribers to the network, bringing the total to 47.6 million, an increase of 17% compared to the total Nextel and Sprint subscribers at year end 2004. These figures include our direct post-paid subscribers, direct pre-paid subscribers, wholesale subscribers and PCS affiliate subscribers, but exclude Nextel Partner results.
During the fourth quarter, Sprint Nextel added 1.4 million direct subscribers including 746,000 post-paid subscribers -- which excludes any affiliate acquisitions -- and 624,000 direct pre-paid subscribers. We also added 558,000 wholesale subscribers, and before accounting for the affiliate acquisitions we added 93,000 affiliate subscribers. For the year, Sprint Nextel added 6.8 million total subscribers to the networks.
In the quarter, total wireless revenues grew 10% compared to the year ago period due to a larger base. In the quarter, service revenues were up 11% while equipment revenues of $842 million were up 3%. Equipment costs from the quarter were $1.4 billion, a 5% increase compared to the year ago period, and up 13% sequentially. The increase was due to higher volume, especially Boost and handset mix. Wholesale and affiliate revenues of $215 million were up 9% compared to one year ago. These revenues were down 5% sequentially due to the acquisition of the three affiliates in 2005.
For the full year, we delivered a 14% improvement in adjusted OIBDA and a 55% increase in adjusted operating income. The adjusted wireless OIBDA margin in the quarter was 34.6% of service and wholesale and affiliate revenues. This margin was 34.8% a year ago. Full year adjusted wireless OIBDA margin was 35.7% compared to 35.5% a year ago.
For both the fourth quarter and the full year, network, cost of service and bad debt were up as a percentage of revenue while virtually every other category including sales, marketing, care costs and G&A was down as a percentage of revenue. Wireless capital expenditures in the fourth quarter, including those related to the 800 megahertz re-banding, were $1.54 billion. We ended the year with about 51,500 wireless cell sites, including roughly 900 sites acquired from the two affiliate acquisitions that closed in the fourth quarter.
For the full year, pro forma Wireless CapEx was $5.6 billion. The spending included investment and EVDO, whose reach is now approximately 150 million [pops]; coverage and capacity on the CDMA network and capacity on the iDEN network. These investments are yielding significant results. Our fourth quarter performance compared to a year ago saw improvements in drops and blocks across both networks.
Turning to operating expenses. During the quarter, the cost of services and products increased 5% sequentially to $3.1 billion. This sequential increase was driven by an increase in handset acquisition costs associated with the higher direct and prepaid volumes, and due to handset mix and higher network costs. The year-over-year increase of 13% was due to network expansion, growth in customers and customer usage and incremental back haul costs for EVDO sites.
Selling general and administrative expenses were 30.9% of revenues during the fourth quarter. This ratio was the same as the third quarter, and down 80 basis points from the year ago period. Sequentially the ratio did not change due to higher seasonal sales and marketing costs; reduced payments from the affiliates due to acquisitions; and, higher care costs from higher volumes. These increases were partially offset by lower bad debt expense and a reduction in G&A. Bad debt expense was 1.5% of revenues, versus 2.1% in the third quarter.
We continue to be very confident in our ability to improve our margins in the coming years, as we realize significant synergies from the merger. We continue to grow the core business including strong growth and wireless data; growth in Boost Mobile's financial contribution; and, we maintain a strong focus on getting the benefits of size and scale in our cost structure.
I'd now like to turn to slide 17 for some detail on our key fourth quarter '05 and full year Wireless operating metrics. As you can see, we've done very well and our market share in the industry has been either stable or increasing. That's not to say that there are not things to work on -- quite the contrary -- but these strong key operating metrics reinforces that this is a powerhouse domestic wireless franchise.
Post-paid direct growth additions were 3.1 billion for the quarter, up 5% from the third quarter and 6% lower when compared to one year ago. Our fourth quarter '05 share of post-paid direct gross adds was just shy of the highest in the industry. We also estimate that when all sources of wireless subscribers in the industry are considered, Sprint Nextel achieved the largest gross add share of any carrier.
Net additions to the network in the fourth quarter were more than 2 million. As you can see from the chart on your left, this was a 60% increase sequentially with the nearly 1.3 million recorded in the third quarter. The chart to the right of the slide shows our fourth quarter 2005 performance compared to the other carriers in the industry. When we include Nextel Partners -- and as you can see, this produces an industry-leading 2.1 million total net additions.
Churn on the direct post-paid base was 2.1%, an improvement from the 2.2% from one year ago and inline with the third quarter's churn rate. Involuntary churn and voluntary churn were unchanged from the third quarter. Compared to the year ago period, iDEN involuntary churn was higher due to its growing consumer base. This was offset by strong improvement in CDMA voluntary churn. We expect the iDEN involuntary churn will continue to be higher on a year-over-year basis through the first half of 2006. Churn, which represents customer satisfaction across many customer touch points, will continue to be a key focus area for us in 2006.
Fourth quarter post-paid ARPU of $63 was the highest post-paid ARPU across the national carriers. ARPU continued to benefit from a growing contribution from data services which I'll discuss in more detail in a few minutes. This growth in data was offset by reduced overage charges and seasonally lower roaming revenues, compared to the third quarter; and, a lower average monthly recurring charge and lower overage charges compared to the year ago period.
Let's move to slide 18 and focus on Boost Mobile and their operational performance. Let's detail the value of Boost Mobile's subscribers. First off, the Boost Mobile team is to be commended for an outstanding 2005. They achieved very strong financial and subscriber growth which is driven by the strong appeal of their lifestyle brand and augmented by a very effective and differentiated marketing message.
This appeal has brought strong improvement in customer satisfaction as measured by churn. Boost's churn was 4.6% in the fourth quarter, which is an improvement of 210 basis points from the fourth quarter last year. This improvement was a contributor to subscriber growth. Total Boost subscribers increased to 2.6 million in 2005, including 638,000 additions in the fourth quarter of 2005. For all of 2005, the total Boost subscriber base increased 1.5 million, or 126%.
2005 revenue increased 164% over 2004 and contributed positive OBIDA in 2005. Boost Mobile, as well as our other second brand strategies like Virgin Mobile, and our MVNOs are driving increasing value to the Sprint Nextel shareholder. This value is perhaps not well understood.
Boost Mobile, for example, may be a pre-paid product but that does not equate to low margins or marginal value. In fact, it is quite the opposite. Boost Mobile subscribers had a $37 ARPU in the fourth quarter. These subscribers have low acquisition costs, low customer service costs, and low incremental network investment as their monthly minutes of use are much lower than a post-paid customer.
If you compare the average post-paid Add-A-Phone subscriber to a Boost subscriber, you will find they typically have a lower ARPU than Boost, higher acquisition costs and have higher incremental network investment as their monthly minutes of use are similar to a post-paid primary line.
The offset to this is that an average Add-A-Phone has a longer life and it also tends to reduce the churn of the primary line it accompanies. At current performance levels, we estimate the Boost subscriber lifetime value -- which is lifetime revenue less lifetime costs and investments -- is on par with the value of the average post-paid Add-A-Phone subscriber, while Boost's payback period is shorter.
Be assured that we'll also continue to aggressively pursue primary post-paid and Add-A-Phone opportunities where the economics are attractive. Additionally, we both Boost and Virgin Mobile joint ventures in our arsenal, we really like our position in the pre-paid market.
Let's now turn to slide 19 to talk about another part of the industry where Sprint Nextel was leading. In the quarter, Sprint Nextel expanded its mobility data leadership, as we continue to see very strong take rates and usage patterns for our Vision, PowerVision and iDEN data services. In the quarter, wireless data contributed $6 or almost 10% of reported ARPU. Sequentially, data ARPU increased $0.75 or 14%, driven by a very strong growth in usage and subscribers. Compared to the fourth quarter last year, pro forma wireless data ARPU is up $2 or a 50% increase.
Sprint Nextel has been the industry leader in wireless data ARPU as both a percentage of reported ARPU and in reported data ARPU since the launch of our Vision service in 2002. We expect to build on this leadership in 2006.
In the fourth quarter, data revenue was over $660 million, an increase of nearly 70% from the fourth quarter of 2004. Total wireless data subscribers at year end were 13.5 million, or 36% of the direct post-paid base.
Our next-generation data offering, PowerVision, which uses EVDO technology, gained significant traction almost immediately after launch; and in 60 days, subscribers approached 250,000. We expect PowerVision results to continue to grow rapidly as we continue to expand the DO footprint.
Slide 20 outlines what we believe is a game-changing development in the telecom industry, and that is our joint venture with the leading cable network operators. This joint venture positions both Sprint Nextel and our cable partners to better enable each other to compete with the RBOCs. Each of us can get to the market quickly with a fully integrated service that builds on the expertise of each company. We can take advantage of the scale, network access, capital and well-aligned strategic goals to create value for our customers.
Importantly, this joint venture has the potential to be the all-in-one multimedia and content provider for all transferred services of local, long distance, video, Internet and wireless to 75 million households.
The details of the joint venture are as follows: It's a 20-year agreement with a three-year exclusivity period. The revenue-sharing system at this time is a sales agent relationship. When Sprint Nextel sells a cable partner's bundle, we receive a one-time commission. This commission increases with each service added to the bundle. The respective cable partner then retains all of the revenue and incurs all of the expense to service that customer. Just the reverse is true when a cable partner sells our wireless service.
The partners will contribute $200 million to the joint venture to develop converged products. These products will be clearly differentiated in the marketplace and the revenue sharing will be more sophisticated. We will update you as we get closer to that point and from a timing perspective, we expect the majority of these converged products to be available in 2007.
We have staffed the joint venture and John Garcia has been named to lead the team on the venture. Product development is well underway, and you should expect to see us launch the bundled services in initial markets in the second half of this year.
Let's move to long distance on slide 21. LD continued a several quarter trend of posting results that exceeded those of the other major long distance companies. This overall trend is driven by less exposure to consumer long distance, growth in our differentiated MPLS services and volume increases in our wholesale voice business, due to growth in cable telephony and wireless backbone demand.
Total long distance revenues were $1.66 billion, a decrease of 4% sequentially and year-over-year. Both of these declines were driven by lower voice revenue. Full year revenues were $6.8 billion, down 7% from full year 2004. Again, a majority of this decline was due to lower voice revenues.
Business voice revenues decreased by 2% from the fourth quarter of 2004 and for the full year decreased 4% as declines in retail voice, driven by repricing the base, was partially offset by strong growth in affiliate and wholesale revenues.
Consumer voice revenue declined by 28% compared to the fourth quarter last year, and declined 25% for the full year, due to reduced volume and rate declines. This is merely a continuation of recent trends as more traffic goes to bundles. Consumer long distance voice revenue is now only 8% of the total long distance revenue and about 1% of the Company's consolidated revenues.
Revenue from data services declined 2% from the year ago period and was down 5% for the full year. These declines were due to lower frame relay and ATM revenues as customers migrate to IP. These declines were partially offset by higher revenues from our managed network services.
Internet revenues increased by 2% sequentially and increased 9% compared to the year ago period. The annual increases in Internet revenues are somewhat masked by the effects of exiting the dial IP business. First quarter 2006 results will finally have this comparison challenge behind us. Our dedicated IP business grew 4% sequential sequentially and 20% year-over-year. Full year dedicated IP revenue increased over 16%.
Strong IP results are due in part to our MPLS offering. Sprint provides a differentiated MPLS VPN offering in approximately seven countries in Europe, Asia and Latin America. Throughout 2005, customer demand for MPLS services exceeded our expectations and we expect strong demand to continue for many years.
The Long Distance business delivered adjusted OIBDA for the fourth quarter of $223 million. This was down from the $285 million reported in the third quarter. Although expenses also decreased sequentially, revenue declined at a faster rate primarily due to the seasonally lower business voice revenue and the decline in consumer voice revenue. Compared to the year ago period, adjusted OIBDA declined by 5%, driven by a 4% decline in revenue, a 2% increase in cost of services and products due to increased volumes, and partially offset by a 9% decline in SG&A.
In the quarter, the adjusted OIBDA margin was 13.4% which compares to fourth quarter 2004 margin of 13.6%. For the full year adjusted OIBDA margin was 15.1%, down from 15.5% in 2004. For the full year, adjusted OIBDA was just over $1 billion. I would point out that this exceeded our guidance of $800 million to $950 million given last February.
Adjusted operating income declined by 30% compared to the year-ago period as revenue declined faster than operating expenses and we had sequential year-over-year increases in depreciation. The higher depreciation is due to shorter life, capital investments and additional asset retirement allowances.
Our full year Long Distance capital expenditure was $384 million. Sequentially and year-over-year, Long Distance CapEx has increased, reflecting growing demand for MPLS services, strong growth in the wire line cable telephony business, and replacement CapEx due to hurricane damage. In the quarter, Long Distance capital expenditures was $166 million. On a year-to-date basis, OIBDA was nearly $650 million ahead of our capital investments.
Turning to slide 22, I'd like to give some highlights on the success we are having in the business marketplace. These highlights demonstrate the kind of market advantage we hold against our competitors, who are now just attempting to imitate our convergence initiatives around wireless and IP.
Service Master provides various services to the 10.5 million homes and businesses they serve each year. Consequently, they have thousands of diversified field-deployed service teams. Service Master looked to Sprint Nextel to find wireless solutions that would allow them to not only better manage these teams, but to increase their productivity and effectiveness. As a result, Sprint Nextel signed a multi-million dollar, multi-year agreement with Service Master, providing them with 45,000 wireless units with wireless-based applications that will assist in tracking assets and improve field sales effectiveness and service delivery. Service Master will realize improvements in their overall work flow, field and office productivity, and greater control of their communications expenses for all layers of their company.
Another example is Office Depot, who recently signed a multi-million dollar, multi-year agreement for MPLS services. They looked to Sprint Nextel for a next-generation data service that is cost effective, while enabling future VoIP applications.
Another example is Wild Oats, which is the nation's second largest, one-stop full service supermarket for natural and organic foods. Sprint Nextel is helping this fast-growing company by transitioning their legacy frame relay network to MPLS. This will help them to more effectively manage their network as well as link 115 separate sites together across 24 states and British Columbia. Additionally, they have signed a multi-million dollar, three-year contract for voice, data, and wireless services.
And finally, Tow Partners, the industry association for the towing business, and Sprint Nextel signed a very significant multi-year renewal agreement for 25,000 iDEN wireless units, providing walkie-talkie and GPS services. Tow Partners uses our services in many ways. The GPS services enable towing companies to manage their fleets efficiently from a dispatch as well as an asset-tracking perspective. These services are also used for routing a truck to a particular location. SMS and two-way messaging are often utilized for electronic dispatching. Credit card swiping is gaining acceptance as towing companies are trying to make it easier for their customers to pay, as well as a method to reduce bad debt.
So I think you can see from these customer stories, we are achieving significant traction and differentiating in the business marketplace. Now, let me turn it over to the head of EMBARQ, Dan Hesse. Dan.
Thank you, Len and good morning, everyone. Turning to slide 27, I'm going to open my remarks with an update on the separation of the Local Business into a strong , independent Fortune 500 company. We've made significant progress toward the separations. With the potential distraction this could have caused, we are pleased to be reporting strong results.
Regarding the PUC approval process, the transaction has been approved or is in the final stages of approval in 12 of the 18 states in which Sprint provides local service. Approval isn't required in four states, so only Kansas and Washington -- representing just 3% of the Company's access lines -- continue to contest the proposal.
We have also filed the initial SEC Form 10 with detailed historical financials and we filed the registration statement on form S1 in connection with Sprint Nextel's offering of $4.1 billion to $4.6 billion of EMBARQ senior notes.
We've completed the key commercial and transition service agreements with Sprint Nextel, including agreements pertaining to the wireless MVNO, long distance and access, wholesale and IT support services.
We've announced four new board member designees in addition to myself. These new members are Peter Brown, who is the Chairman, President and CEO of AMC Entertainment; Bill Owens, the former CEO of Nortel Networks and the former Vice Chairman of the Joint Chiefs of Staff; Dinesh Paliwal, the Chairman and CEO of ABB Inc., which is the U.S. subsidiary of ABB and also he is the President of ABB's Global Markets and Technology Group; and finally, Stephanie Shern, a member of the Sprint Nextel board and the former Vice Chairman and Global Director of Retail and Consumer Products at Ernst & Young.
On February 1st, we announced the new name of the Company, EMBARQ, and we unveiled our new logo. The new name and logo, with it's distinctive green coloration is a brand we want customers to notice and to remember. We also announced that we will trade on the New York Stock Exchange under the ticker EQ.
Our operating planning continues to be on track. We hope to have all regulatory approvals by the end of April and we are currently targeting full separation by the end of May. Because of our preliminary S1 filing with the SEC earlier this month, we can't offer 2006 guidance to you today, but we anticipate providing certain guidance before the end of March, coinciding with the S1 and Form 10 updates we plan to file at that time.
I'd like to turn now to a review of our performance highlights which are found on slide 28. I'm pleased to report that we had a strong fourth quarter and year, both financially and operationally. Financially, we reported solid revenue and operating profit performance. We generated a lot of cash in 2005, as adjusted OIBDA exceeded CapEx by over $2 billion. Effective expense management allowed the telecom segment to achieve a full year adjusted OIBDA margin of 50%. We prudently managed capital expenditures as well. In 2005, CapEx as a percentage of telecom segment revenue was 15%, a decrease from 2004's 17%.
Now, operationally, we had a strong fourth quarter and full year. Previously, I mentioned the progress we've made towards separation. In the quarter, we were also hit by destructive hurricanes, but the response to these storms was rapid and repairs went smoothly. Within a very short period of time, the network was operating at a high level again.
In the fourth quarter, we also successfully resolved all five of the outstanding strikes that began late in the third quarter. Strikes were settled in North Carolina, Indiana, Florida, Tennessee, and Virginia. The CWA has also recently withdrawn its opposition and its intervention in the state proceedings with respect to our separation.
We achieved solid DSL results. In the quarter, we added 55,000 DSL subs bringing the year end subscriber number to 693,000.
Finally, our North Supply business saw sharp increases in non-affiliated sales, which are sales outside of Sprint. I'd like to note that in spite of the operational challenges of the separation, and the new competitive threats, the local division matched or exceeded the 2005 financial guidance provided at our investor meeting last February.
Now turning to a more detailed discussion of our financials on slide 29, total Local Division revenue of $1.67 billion was up 4%, compared with the fourth quarter of 2004. Looking at revenue by segment, telecom declined 1% year-over-year while North Supply non-affiliate revenue increased by 83%, mainly due to a significant contract that provided replacement equipment for hurricane-damaged areas.
From a product perspective, fourth quarter voice revenue declined 4% year-over-year, driven by fewer access lines and lower access minutes of use. Data revenue increased 18% from last year, fueled by DSL gains as well as special access sales. Other revenue increased by 2% year-over-year, due to increased non-affiliate sales at Sprint North Supply.
Fourth quarter adjusted operating income of $494 million was up 3% year-over-year, driven by lower SG&A and lower depreciation. Fourth quarter depreciation was positively impacted by a one-time true up associated with adjustments to the in-service date of certain assets.
Adjusted operating income at the telecom segment was $502 million, an increase of 3% year-over-year. Fourth quarter adjusted OIBDA of $753 million was flat year-over-year. Capital expenditures were $303 million for the quarter and adjusted OIBDA less capital -- a measure of cash generation -- was $450 million for the quarter.
Moving to the right of the chart, full year 2005 financial results were solid. Revenue of over $6.5 billion increased 2% as a 1% decline in telecom revenues was more than offset by a 41% increase in North Supply non-affiliate revenue. Adjusted operating income was $1.85 billion, a 2% increase, while adjusted OIBDA was $2.94 billion, a 1% increase from 2004.
Capital expenditures in 2005 were $857 million, down from just over $1 billion in 2004. This higher OIBDA and lower CapEx resulted in adjusted OIBDA less CapEx that was up 11% year-over-year to $2.1 billion.
Turning to slide 30, I'd like to discuss some key operating metrics, specifically access lines and DSL. The competitive environment remains intense and it is increasing in our territories. The two-prong attack from wireless and cable continues to erode access lines at an increasing rate. The percentage of households offered a cable telephony alternative increased from 30% to 40% in the fourth quarter, and this will increase to nearly 90% by year end 2006.
However, despite these pressures in 2005, we were able to deliver solid results. This was due in part to continued growth in data. Compared to 2004, voice revenue declined by 4% to just over $4.3 billion as total voice access lines and service declined by 318,000 or 4.1%. This was an increase sequentially from the access line decline of 3.6% reported last quarter. The primary driver of these declines continues to be residential voice line disconnects due to cable and wireless substitution of primary lines, and our own broadband substitution of secondary lines.
Now, nearly offsetting the downward pressure on revenue from lower access lines and voice minutes was growth in data. For the quarter, data revenue grew 18% to $259 million. Full year 2005 data revenue grew to nearly $1 billion, an increase as well of 18%, compared to 2004. Special access revenue was up 9% for the quarter and 10% for the year. These increases were due to continued strong wholesale sales to wireless carriers.
DSL was a big contributor to data growth. Quarterly DSL revenue grew by 42% year-over-year to over $90 million, which is roughly $360 million annualized. Full year DSL revenue was $326 million, an increase of 46% compared to 2004. These increases were driven by subscriber growth and generally stable ARPU. At year-end 2005 there were 693,000 DSL lines in service, an increase of 201,000 or 41%. Sequentially as I mentioned, DSL subscribers increased by 55,000.
Last quarter, we saw October DSL results that were somewhat light, but we exited the quarter with some momentum. In fact, December was our second-best month ever. This improvement was attributable to a new DSL offer that launched in mid-November and we expect to see strong DSL subscriber growth continue.
Slide 31 lists our current areas of focus. A top priority is to complete the separation from Sprint Nextel and to achieve a smooth transition to becoming a stand-alone public company. As I mentioned, with continued progress in the regulatory arena, our goal is to have this completed by the end of May.
As mentioned earlier, competition is intensifying, but we have a strong position as well. We have relationships with our customers, an experienced management team, and the network and financial assets with which we can compete. We plan to compete more vigorously going forward and to become a more effective marketing company. We plan to introduce innovative offers which will leverage our wire line assets, open new sales channels and segment our consumer business and wholesale markets more effectively.
We also have an opportunity to get a boost in the market from the launch of our new brand. We will strive to become a better provider and a better competitor, while continuing to do what we have a history of doing -- executing on the business plan. Now, I'll hand it over to Curt for Q & A.
Thanks, Dan. In just a minute we'll go to your questions. I do want to point out that you may get both an audio only as well as a webcast replay of this presentation of our website at www.sprint.com. The audio replay can be reached at 800-642-1687. If you are dialing from international location, it is 706-645-7291. You will need to enter the ID# 4341597. That should be available for the next couple of weeks. Now we'll open the lines for your questions. Operator, if could you please instruct our participants on how to submit questions.
Yes, sir. (Operator instructions)
Your first question come from the line of Jason Armstrong with Goldman Sachs.
Jason Armstrong - Goldman Sachs
Great, thanks. Good morning. Just a couple of questions on the wireless side. There's obviously a lot of focus on the net add mix in wireless. You provided some good details on Boost's economics. Could I ask for a couple more? (1)What are the acquisition costs in that business? (2) How do the margins at the EBITDA level compare to the legacy post-paid product?
My second question is, if you look at the subscriber mix going forward -- especially on the direct side -- roughly a 50/50 mix in 4Q between pre-paid and post-paid. Is this a good ratio to think about into 2006?
My final question on this would be, you are through almost two-thirds of the first quarter at this point. Any comments on the momentum you are seeing in the quarter so far in wireless? Thanks.
In terms of your question, acquisition costs obviously are quite a bit lower. I think we'll hold off until the March 7th analyst meeting and I think we'll give you a little more detail in the different presentations. Don [Gurns] who is the head of Boost, will also be presenting. We can talk and give you a directional piece, but it is quite a bit lower.
I think your question about the margins, the OIBDA margins we have on Boost would be slightly lower than what we're seeing on post-paid, but at the same time we do anticipate that to grow. It's grown well for us sequentially in the past year, and we expect that sequential growth on a margin basis percentage to increase through this year and also into 2007. I think we'll give you a little bit more of that into 2007.
Your third question was about the split of post-paid to pre-paid. You see us roughly at 50/50. How do we see that going forward? I think one piece -- and we'll talk about this also on March 7th -- you remember when most people report post-paid, there's a high mix of Add-A-Phone. On the iDEN side, we really don't do very much Add-A-Phone in our iDEN business. So when you see our 50/50 mix, I think you need to be careful as to how you compare that to our competition. That's why we really wanted to give you more detailed visibility in the economics of Boost and where it really does equate to the value of a post-paid Add-A-Phone. A post-paid add doesn't necessarily equal a post-paid add because of the different valuations between an Add-A-Phone and a primary subscriber.
Given the higher ARPU and the lower churn Boost has compared to other pre-paid competitors, we think you ought to value it more as an Add-A-Phone subscriber. We are not setting expectations yet for first quarter or full year on adds; really the mix between Boost or post-paid, but obviously Boost is running well for us and we would anticipate that going forward.
I think your last question is, how are we doing through the first two months of the quarter? I think the guidance that Paul gave you -- which obviously didn't hit on adds, but the overall guidance was set with the experience we have through the first month or two of this year.
Jason Armstrong - Goldman Sachs
Okay, great. Thanks.
Your next question comes from the line of Blake Bath with Lehman Brothers.
Blake Bath - Lehman Brothers
Good morning. Just a couple of questions. Paul, you touched on the tax considerations which regard to share repurchase. Can you just flesh that out a little bit more for us?
Second, on the timing of offerings coming out of the cable partnership, has that slipped by a couple of months? I seem to recall that that was supposed to be mid-year and you are now talking about it as being second half.
A last question would be on net adds. I noticed that you are not guiding towards net adds for 2006. I assume that's intentional. Could you just talk about your philosophy with regard to adding subscribers, the growth of the wholesale business and continuing to maintain the highest value customers in the industry?
As you remember, we had structured the merger so that Sprint shareholders had over 50% ownership of the combined entity. As part of the spin-off, we want to make sure that the spin-off is tax free. There is quite a bit of benefit to making sure that this transaction is effected that way. To do that, we have to ensure that there is a continuity of shareholder interest. As a result of that, we could not have any pre-plan or plan of any kind about a share buyback that may disturb that continuity of interest.
After the spin-off is completed, then at the appropriate time the board may consider what to do with additional action they may take to distribute cash to the shareholders. But at this point, we have no such plans.
Blake Bath - Lehman Brothers
But there's no time constraint after the spin-off is done?
There's really no clear, demarcation in terms of when this should happen. So we'll have to wait and see.
Blake, this is Len. Your question about the cable offers that we had said mid-year and now we're saying second half, is that a slip? I wouldn't characterize it as a slip. Just now that we're doing a lot more work together in the joint venture and looking at the timing of the offerings, we're really focused first on bringing out converged voice offerings this year and then with some streaming media, but the majority of the integrated data content offerings will be in really 2007.
As we are going through the work and as we look at integrated voice mail platforms, as an example and as we do that across four cable MSOs, that's why we are saying second half. I think we are just getting a little bit more focused now on what we need to do to be in the marketplace.
Your question also about not giving gross add guidance for 2006 -- what is our philosophy and how do we deal with high value adds? We are, as demonstrated with our results in the fourth quarter, very focused on customers that bring us very profitable results. And whether that's a focus, that is where we are going to put more and more on prime customers -- that's very much focused on mobility to really go after the data opportunities. I think you saw from our results, our data ARPU going up $2 for the year, 50% up 3Q to 4Q and the overall data revenue up nearly 70%; that as we focus more mobility in the references we gave you in the business marketplace, we think there is a lot we can do with both our Push To Talk platform with industry applications and with our PowerVision platform through air cards in the business space; and through streaming media, music applications, gaming applications in the consumer space to really help grow and increase our value as we focus more and more on mobility.
As we do that at the same time, as we talk about Boost, that is a significant growing piece of our franchise. One that we are very proud of, as we just talked about the economics. And, our multi-brand strategies through the MVNOs is giving us good revenue growth and contributing nicely to our OIBDA margin increases also.
Blake Bath - Lehman Brothers
Great, thank you.
Your next question comes from the line of Michael Rollins with Citigroup.
Michael Rollins - Citigroup
Good morning. I was wondering if you could talk a little bit more about the marketing and distribution strategy with an update as to where the brand is, where you would like to take your store presence over the coming year?
Also, a question on handsets to follow up on what you said earlier, in terms of the variety of handsets and where you're looking to take the direction. Are you looking to do more data and high value phones? Or, keep a nice mix of different types of phones for different customer groups? Thanks.
It's Tim, I'll try to handle your questions. First on store presence, right now today in the network we've got over 20,000 doors in total. We've got a strong direct retail presence that we're rationalizing to eliminate overlap and low-producing stores. So coming through the synergy process, we would expect to have 1,600 stores and kiosks in the network that we own and operate under the Sprint brand. That contemplates a reduction of about 160 to 170 locations. That work should be completed as we get into the second quarter.
We continue to focus heavily on national retail. Obviously, we renewed our relationship with Radio Shack so that extends for another 10 years. We feel like we've been competing -- at least from a decisions perspective -- very well through the fourth quarter in Radio Shack and continuing into the first quarter.
We have an extensive local third-party distribution network as well and there too, we're doing some rationalization to make sure that the quality of those dealers in terms of the type of customers they're adding and the churn profiles hit our standards. So there's a constant rationalization, if you will, that goes on within that base.
We'll play in all three areas and we're also expanding our presence in web and telesales. Actually web and telesales growth in 2005 for us was fairly impressive in terms of the amount of sales that we're doing through those channels and again, they are company-owned.
From a branding perspective, I think you saw the advertising program developed over the fourth quarter. We're maintaining focus on the Nextel product brand. That is very important for certain segments of the market, while we use the master brand, Sprint, to talk about the totality of what we're bringing to the marketplace. You will see us continue with that approach through 2006. It's very important to keep the Nextel product brand alive, and particularly to support a lot of the former Nextel third party dealers.
From a handset perspective, a lot of work -- as Len referenced in the script -- to rationalize the handset portfolio and get down to a number of SKUs that we can more easily execute in point of sale. You'll see a mix of devices within that 40 from our PDAs and EVDO cards really targeted at the business market. Our EVDO phones, of which we now have five, including a very, very popular model -- the Samsung A900, the Blade phone -- really targeted against the prime customer with high data desires and wants to take advantage of the great applications we now have on PowerVision. We will also have lower priced data phones in the 1XRTT realm, which continue to drive a lot of volume for us. Finally, we will have some more basic handsets, more at the free or $9 price point to attract the voice-only market.
We'll try to maintain a handset portfolio that really stays around that 35 to 40 SKU range but with enough diversity to be able to deal with the different customer interest and needs. Then obviously as we get into late 2006, early 2007, we'll be rolling out our dual mode phone that will allow us to get the benefits of CDMA data services and high performance Push To Talk.
Michael Rollins - Citigroup
Your next question comes from the line of Colette Fleming with UBS.
Colette Fleming - UBS
Thanks. A couple questions for Paul. If you could just clarify on the cash tax rate of 10% to 15%; what is that assuming for the local business? Or is that just for the wireless and long distance? I assume they have pretty high NOLs to carry through. If you could just give us an idea of what those NOLs were at the end of the year.
Also, if I look at the CapEx guidance, am I correct to look at this on an apples-to-apples basis at $5.7 billion if I exclude re-banding compared to your original guidance of $6 billion? Which I believe excluded re-banding costs. Is that just, the cut would be because you pre-booked some CapEx in 2005 because of the vendor discounts?
Just on the $13 billion in OIBDA guidance, is that a typo on the press release that it doesn't say "or more"?
All right let me start with the tax. I mentioned a 10% to 15% on a cash basis. That is assuming that the Local has actually spun off some time in the second quarter. We have approximately $7 billion worth of NOLs and so we expect to be using some of those NOLs. We're going to certainly get more, probably, from Alamosa and from partners. Also, the 10% to 15% generally on the cash side represents some of the state and local taxes that we have to pay and some AMT that goes with it at the federal level.
As far as the CapEx, you're absolutely right. If you were to compare with the previous guidance we gave you, the guidance for 2006 is more like $5.7 billion, excluding re-banding and indeed you are correct. Some of the difference from what we gave you before of $6 billion is the $300 million or so that we pushed into 2005 to take advantage of vendor discounts.
As far as the $13 billion is concerned, we said "approximately" on that so we'll see how the year progresses.
Colette Fleming - UBS
Your next question comes interest the line of David Barden with Banc of America Securities.
David Barden - Banc of America Securities
Good morning, guys. Two questions. On ARPU and the trends here, I guess the way we got to $63 ARPU was kind of a minus 4 on voice and a plus 2 year-over-year on data. You talked about the EVDO trends and such, but maybe you could speak to the kind of trajectories of both the voice and the data ARPUs as we look into 2006, and where you think we can net those out.
The second one was just -- again, following up on the approximately $13 billion guidance -- if we strip out the $1 billion of synergy savings that Len, you were talking about before, it implies about $12 billion of organic OIBDA. That implies roughly a growth rate in the high single digits; whereas in 2005 we were growing in the mid-teens on these businesses. So, are we looking at something significantly changing from a growth perspective year-over-year? Or, are we kind of sand-bagging these numbers? It's just such a big difference from 2005 to 2006 from a growth standpoint, that either there's something really changing about the business or these numbers are just too low. Thanks.
Thanks for those comments. Let me take the first piece and Paul can take the second. On the ARPU, your question was of the $63, about down 4 ballpark on voice and up 2 on data, what does that mean?
On the voice side, there are two pieces, a main piece has been that overage revenue have been coming down and that's been a conscious focus of ours over the last couple of years, as we were nervous about the very high overage charges that we had. That obviously helped ARPU but very much hurt voluntary churn.
So the Fair and Flexible plan has been designed to really address that and it's caused two things. One is our voluntary churn has declined significantly on CDMA but that also has been at the expense of lower overage. So that's been a decline. Also obviously with more on the CDMA base than on the iDEN base, as Add-A-Phones that we talked about earlier get to be more of your base -- and this would affect all carriers -- that's going to affect your voice ARPU a little bit also, from an MRRC standpoint.
So I think going forward -- we'll talk about this more at the meeting in March. You know, on the overage side, we think we're about where we should be on the overage so I think the year-over-year declines wouldn't be quite as strong going into 2006 as in 2005.
On data, obviously good performance this past year. We were encouraged by the results we saw in 2006. As Gary mentioned, very good early results from the Music Store. We're pleased with PowerVision and the higher packages of PowerVision, i.e. folks signing up for the $25 package that includes the streaming services. We're very happy with the percent sign-up rates we're achieving there so I think we can feel good going into 2006 about our opportunities to grow data and really move into the mobility space.
The references we gave on business too, where Mark Angelino and his team are doing well, not only with the air card sales but also around the vertical applications we talked about it -- Service Master and the Towing Association -- around the Push To Talk vertical applications. Paul, do you want to talk about the --
Let's put things also in perspective. We are improving our margins in the wireless segment by about 200 basis points. When you look at 2006 and you try to compare it to 2005, remember that the long distance business is having lower margin than it was for the full year of 2005. We got it just basically into the low teens and in 2005 our margins there were about 15%. So when we said it's in line with the fourth quarter -- which is around 13%. There were some synergies already that we had benefited from in 2005 and so on the year-over-year basis we're doing very well.
David Barden - Banc of America Securities
Great. Thanks, guys.
Your next question comes from the line of Stephen Glick with Credit Suisse. I'm sorry, that question has been withdrawn. This concludes the question-and-answer session for today's call. I will now turn the conference back over to management for any closing remarks.
Okay, well again, this is Kurt. I do appreciate everybody's participation this morning and please feel free to give us a call at Investor Relations if you have some follow-ups. Thanks, everybody.
This concludes today's conference call. You may disconnect at this time.
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