Telephone and Data Systems, Inc.
Q3 2008 Earnings Call Transcript

Published: 5 Nov 2008

[Operator:]

Good morning. My name is Adrian and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Steinkrauss, you may begin your call.

[Mark Steinkrauss:]

Thank you, Adrian and good morning everybody. We know there are eight other companies announcing today so we appreciate you are being with us. With me today are Ken Meyers, Executive Vice President and CFO of TDS, Steve Campbell, Executive VP Finance, CFO and Treasurer at U.S. Cellular, Bill Megan, Executive VP Finance and CFO, TDS Telecom. Also joining us are Jack Rooney, CEO, U.S. Cellular and Jay Ellison, Executive VP and COO. Jay is going to offer a few prepared comments following Ken and we will also be available for Q&A. A replay of this teleconference will be available toady at 1

[Ken Meyers:]

Thank you, Mark. Good morning and thank you for joining us today. I have a few comments to make before I turning the call over to Jay Ellison, Steve Campbell and Bill Megan, who will cove the operating results. We will open the call up to questions at the end of the prepared remarks. Highlights for the quarter including operating revenue for TDS, which was up 6% to $1.3 billion with most of the increase at U.S. Cellular. Operating income was up 13% due principally to increased revenues at U.S. Cellular. The completion of our 2007 stock repurchase authorization and the announcement of a follow-on stock repurchase authorization. As noted in our release, the company bought back, nearly 807,000 special common shares for $30 million in the quarter, under the TDS 2007 stock repurchase authorization. In October, the company finished that program. I should note that the original authorization covered a three year period. The company completed the program in under a year and a half. As you saw earlier today, the TDS Board of Directors has now authorized an additional $250 million stock repurchase authorization. This time allowing the purchase of either TDS common or TDS special common shares, depending upon the market conditions. Additionally, U.S. Cellular continues to purchase shares under its de minimis program purchasing 150,000 shares in the third quarter. Going back to the income statement, TDS booked a $31.7 million pretax gain, a portion of which is recorded at the U.S. Cellular level resulting from the company's ownership of Rural Cellular. Now that Rural Cellular acquisition has been completed, TDS has no derivative securities or marketable equity securities of other companies on its balance sheet. For the quarter, the effective tax rate was 33.2%, lower primarily due to a one-time state benefit. For the year, we expect the effective tax rate for both companies to be in the mid-30s. Looking at the balance sheet of TDS, its financial strength is evident. TDS ended the quarter with all of its lines of credit essentially unused. All of TDS's long-term debt is fixed rate, with no interest rate risk and termed out about 30 years. The company has no unfunded pension liability, since it has a defined contribution plan and the company has over $1 billion in cash invested, primarily in US Treasury securities. TDS business units produced solid third quarter financial results and continued to generate free cash flow. Those results coupled with TDS' already strong balance sheet, provide TDS with the financial resources and flexibility demanded in these changing economic times. Now let me turn the phone call over to Jay Ellison.

[Jay Ellison:]

Thanks, Ken and good morning, everyone. I am going to begin with some general comments about our overall business results and plans and then Steve will cover our financial results. As you will hear this morning, we found the third quarter to be challenging, as we faced difficult economic conditions and intense industry competition. Despite these challenges, we delivered pretty solid results overall for the quarter. We ended the quarter with almost 6.2 million total customers, up 2% from the prior year. In our key retail post pay segment, we added 12,000 net customers during the quarter. The retail post pay churn was about 1.6% for the quarter, about the same level as in the prior year. We are reporting year-over-year growth in both, service revenues at 6% and ARPU at 4%. In fact, this is the 12th consecutive quarter in which we are reporting year-over-year growth in ARPU. Both of these positive trends in service revenues and ARPU reflect outstanding growth in our data revenues. Consistent with the growth in service revenues, we are reporting an increase in operating cash flow of almost 9% on a year-over-year basis. On the other hand, our subscriber growth for the quarter was disappointing. As I already mentioned, in the postpay segment, which has been our primary area of focus and represents approximately 95% of our total retail customer base, we added 12,000 customers on a net basis, however, in the prepaid segment, we lost 15,000 customers and a number of factors affected those results. First, we experienced decrease traffic in our retail stores leading to a 13% decline year-over-year on gross retail additions. We are attributing this somewhat to the effects of the weak economy as well as a strong customer appeal of certain handsets, which our competitors are able to offer on an exclusive basis. Second, we do acknowledge that our prepaid product offering is not as robust as that offered by some of our competitors, particularly in the area of data services. We are working to fix that and expect to offer new data services to the prepaid customers in 2009. Another factor contributing to our weak sales in the prepaid segment was increased competition from unlimited providers such as Leap, which launched service in our Oklahoma City and St. Louis market during the second quarter. In response to this competition, and the expectation of Leap's expansion into some of our other marks, to example Milwaukee, and Chicago, we have been trialing a new prepaid product that provides unlimited usage and long distance for $65 per month and also offers a roaming option to subscribers willing to place a deposit. In this tough competitive and uncertain economic environment, we believe that it is important to continue to invest in our business and customers for the long-term. One of the significant steps that we are taking to further differentiate our customer satisfaction base business model is our new belief in something better branding campaign that was launched in late June. With this campaign, we introduced new branding positioning that communicates our belief that wireless plays an important part in our customer lives and goes well beyond just completing the telephone call. We believe that we are more than just a phone company. We are the company that is bringing humanity to an industry that has often devoid of it. Thus far, the response to the campaign and our new print, radio and TV advertising has been overwhelmingly positive. To capitalize on the growth in demand for data products and services, we continue to expand our smartphone and related offerings. During the third quarter, we introduced the HTC Touch Windows Mobile device, our first all-touch smartphone. In addition, we launched several new product enhancements, including U.S. Cellular's search and info, a new application within our easyedge suite of products that gives customers the ability to easily search for ringtone, wallpapers, games and other applications. Beginning October 1, we introduced new service plans that offer free incoming text and picture messaging. We also are introducing new easyedge plans, which will include e-mail, a mobile browser and we have just launched the Samsung Dell, a premium mobile touchscreen device. The Dell device, together with our premium mobile internet plan offers customers the perfect package for a rich multimedia experience including a full HTML browser, an e-mail client and a navigator U.S. Cellular’s navigation services application. To help ensure that our data customers receive a high quality data experience we have expanded our EVDO coverage to include Chicago and selected markets in Iowa, Oklahoma and Wisconsin. By the end of 2008, our EVDO coverage will reach 30% of our covered population. We continue to plan for future expansion in 2009. This expanded EVDO capability is important because it will allow us to offer our customers an enhanced data experience as well as new products and services not previously available from U.S. Cellular. We also continue to strengthen the overall network with new cell sites and towers in key areas. At quarter end, cell sites in service totaled 6716 up 7% year-over-year. We did not launch any new markets during the third quarter and do not have any plans along these lines at present. For the next few quarters, we intend to focus on increasing total customers, revenues and profitability in our existing markets. Of course, we continue our relentless focus on customer satisfaction, including a commitment to ensure that our customers have access to a high quality network. I am pleased to report that during September 2008, we received our sixth consecutive J.D. Power and Associates Award for highest call quality in the north central region. Now, I will turn the call over to Steve for a discussion of our financial results.

[Steve Campbell:]

Thank you, Jay and good morning everyone. Overall U.S. Cellular is reporting solid financial results for the third quarter. Service revenues of [$114] million increased 6% year-over-year driven primarily by customer growth and demand for our data products and services ARPU of $54.59 was up 4% year-over-year. We continue to see growth in our Data revenues, which were up 35% to $130 million. Data now represents about 13% of our total service revenues, up from 10% a year ago and still has room to grow. During the quarter, we received ETC funding of $38 million dollars. As you know, on July 1st, the FCC published its order adopting an interim cap on the federal Universal Service Fund high-cost program. In recent months, the FCC has been considering other changes in the Universal Service Fund under the heading of long-term reform, which could reduce the amount of support that wireless carriers such as U.S. Cellular would be eligible to receive. An FCC vote on proposed changes originally scheduled for yesterday has been postponed to December 18th. As a result, at this time we do not know the impact of any changes that ultimately might be adopted and the level of ETC funding that we will receive in the future remains uncertain. However, we do not expect a significant change over the balance of this year. Our net loss on equipment for the quarter was $103 million up 3%. Factors include a higher net subsidy per unit reflecting handsets with expanded capabilities including smart phones and aggressive promotions across the industry. We have experienced solid growth in service revenues and data revenues in particular and the equipment subsidy at the cost of getting those additional revenues. We expect the expanded capabilities with the handsets that we offer to continue to drive additional growth in data revenues. System operations expenses for the quarter were $197 million up 6.5%. The increase here reflected an increased number of cell sites in service, higher total minutes of use and higher expenses incurred, when our customers roamed onto other carriers' networks. Selling, general and administrative expenses were $442 million up 5.6%. In this category, the advertising expenses increased about $12 million or 19% primarily due to media purchases and TV production expenses both in connection with the launch of our new Believe in Something Better branding campaign and as we seek to retain our share of voice in this heavily advertised industry environment. Operating income for the quarter was $120 million up 19% from $101 million in the prior year. Operating cash flow was $272 million up 9% compared to the prior year. Operating cash flow margin was 26.9% up six-tenth of a point. Investments and other income totaled $20.8 l million dollars up from $7.7 million in the prior year. During the current year quarter, we recognized a gain of $16.4 million related to the disposition of our interest in Rural Cellular Corporation, which was acquired by Verizon Wireless. Equity and earnings of unconsolidated entities was $22.3 million including $15.3 million related to our interests in the Los Angeles partnership. Net income for the quarter was $90 million or $1.02 per diluted share. As Ken mentioned earlier, our balance sheet is very sound. At September 30th the cash balance was $178 million and there are no outstanding borrowings under the revolving credit facility. Currently, we have borrowing capacity of $700 million under that facility. As I already mentioned, the company generated operating cash flow of $272 million during the quarter. We used some of this cash to fund capital expenditures of $146 million, including expenditures related to the EVDO deployment in selected markets. In addition, we repurchased 150,000 of our common shares at a cost of about $9 million. Finally, our updated guidance, we are expected full year 2008 results is contained in today's press release. Given our year-to-date results in the uncertain, economic and competitive outlook, we are lowering our guidance for retail net additions. Also, we are tightening the range a bit on our guidance for service revenues and confirming our previous guidance for depreciation, operating income, and capital expenditures. Our goal is to continue to drive the growth in revenues, operating income, and cash flow while not compromising our customer satisfaction strategy and our relative competitive position in the market. That concludes my prepared remarks, so now I will turn the call over to Bill Megan for a discussion of the TDS Telecom's results. Bill?

[Bill Megan:]

Thank you, Steve. Good morning, everyone. Results of TDS Telecom continue the trend we have seen in recent quarters. We have had strong increases in DSL subscribers and data revenues and we have successfully managed expenses to hold operating cash flow steady, despite a slowing economy and ongoing competition. For the quarter, TDS Telecom has combined ILEC and CLEC revenues declined 4%, however operating cash flow held constant at $75 million with cash flow margin improving to 36%. Cable competition and wireless substitution continue to impact access lines and minutes of uses losses. ILEC physical access lines declined 5.3% year-over-year, excluding the effect of acquisitions. Again, a strong positive in the quarter was the increase in ILEC data revenues, which grew 23%. Our promotional campaigns for DSL added 6,900 net subscribers sequentially and 34,000 year-on-year, excluding acquisitions. Gross ads remain strong at 15,900 for the quarter and greater percentage of our customers are using higher speed service, which has contributed to residential DSL ARPU increase of 8% to $35. We also had continued success in selling our Triple Play, adding 5,900 net subscribers in the quarter and we now have 54,600 total. We have a very strong partner dish network for the video component and our experience has been that Triple Play customers have significantly lower churn. Over the past year, we have introduced a series of promotions in key markets, including free service for a limited period, a gift card to be used as the customer wishes, a guaranteed lower price for a more extended period and so forth. These present different value propositions and have kept the program fresh and customers have responded favorably. In our commercial customer segment, we are introducing services to help them transition from traditional circuit switch to IP-based offerings. We have rolled out to all of our CLEC market and several of our ILEC marks, a hosted IP service that provides a single converged voice and data communication service, supporting capabilities such as advanced call routing to eliminate busy signals, one number capability and a very user-friendly call management feature. The service offers dynamic allocation of bandwidth so when voice traffic decreases, data speed burst to take advantage of unused bandwidth. Because we host the service, customers benefit by not having to make a large upfront investment in PBX or other system and to get the increased reliability of our network, so our customers can always stay connected with their customers. There is a continued ability for us to add services for future growth potential and we plan to introduce the service to a number of new markets late this year and in 2009. In our CLEC segment, the current revenue decline reflects our decision to improve profitability by focusing our marketing and sales efforts on small and medium businesses and limiting our investments in acquiring residential customers. The number of residential customers in our CLEC markets has decreased by some 20%, while business customers have declined slightly, which has driven overall ARPU, up 2%. We continue to be vigilant about managing our costs. We reduced cash expenses for our combined operations by 7% and we are able to improve cash flow 1% over last year. Implementing process improvements has permitted us to lower average headcount by 6% while still maintaining high customer satisfaction rating. We continue to invest in our network; capital expenditures were $38 million for the quarter on a consolidated basis. We will continue to evolve our network and put the necessary infrastructure in place to offer broadband speeds that are very competitive. 90% of our ILEC lines are equipped for DSL service, 85% of our customers are taking speeds of 1.5 megabit or greater and 49% of its speed from 3 megabit to 6 megabits. In key markets, we are launching 10 megabit service over copper facilities and 15 megabit and 25 megabit service where we have fiber facilities. On October 24th of this year, TDS Telecom entered into an agreement to acquire State Long Distance Company located in growing Walworth County, Wisconsin. The company serves 11600 equivalent access lines through a high quality network near two of our existing companies. Subject to regulatory approval the transaction is expected to close in the fourth quarter of 2008. Finally let me note that we have modified our guidance as shown in the press release. We remain firmly within our previous guidance, but have tightened the ranges to reflect Q3 results. Now, I will turn the call back to Mark Steinkrauss.

[Mark Steinkrauss:]

Thank you, Bill. Adrian, we would be glad to go into question-and-answer period. (Operator Instructions) Your first question comes from Simon Flannery. Your line is open?

[Simon Flannery:]

Okay. Thank you very much. Good morning. If you would talk a little bit more about the FCC you cited the December 18th date. There is a lot of speculation and perhaps given the change in administration and other things will drag on into next year. Do you have any clarification from your folks in Washington about what the next steps are and how likely that December 18th date is to hold? You also talked about your recent acquisition of LD Company. Would you talk about other opportunities we have seen from our consolidation here recently, opportunities perhaps to buy assets in the wireless space as well anything that we might expect over the next couple of quarters? Thanks.

[Jack Rooney:]

Well I will take the first part of your question; this is Jack Rooney relative to the FCC. The FCC postponed the consideration of two or three key docket items relative to the December 18th meeting. We have been basically asking them to clear it from their docket at this point. So that we can all take a good deep breath and approach this thing from a more considered stance. So, we think that they have been rushing the judgment on this and we would like to have it given much more consideration. Whether that idea prevails or not, we do not know. They very well could consider anyone of our number of plans that are available to them and on December 18th. I think your consideration that they might with the new administration coming in back off that could very well happen. We just do not know

[Simon Flannery:]

Thank you.

[Jay Ellison:]

Go ahead. Bill, do you want to talk about State Long Distance?

[Bill Megan:]

Sure. If you would just let me follow-up on the regulatory there has been so much up and down in the past month on the internet carrier compensation in US that they would impact the wire line as well and a lot of speculation in the absence of a proposed order to review. From our prospective, it stands with a series of question marks about what happens next. So, there is really no action to comment on yet. We would be more than happy to talk with you when there is action taken. With respect to acquisitions, State Long Distance represented is emblematic of our strategy. We look at opportunities and when the pricing is right and there is good fit, good strategic fit for us, we will pursue them. So, in this instance, it is nearby two of our existing companies. So we can take advantage of our current deployments there. It is a very high quality network. We believe, we can leverage up on that network and get higher penetration and new sets of services, higher quality service out to the customers. So, we will look at opportunities like that in the future. In terms of consolidation in the ILEC space I do not have a comment.

[Simon Flannery:]

Do you have anything on the wireless side from an M&A point of view?

[Steve Campbell:]

The obvious one that is out there, everybody in the industry is probably looking at what comes out of the of the Verizon Alltel transaction. We have seen the same public documents everybody else has. We are not going to comment on any specific transaction. I think as we have said in the past that there is not a deal out there that we do not eventually look at, whether or not we can make it work long-term is a separate issue. We look at most things that come across the table.

[Jay Ellison:]

The other thing that you can see in the 10-Q, we have made a number of acquisitions of spectrum specifically and again we will not and can not comment on specific things. That is something we would continue to look at as opportunities present themselves.

[Simon Flannery:]

Great. I appreciate it

[Operator:]

The next question comes from Philip Cusick. Your line is open.

[Philip Cusick:]

Hi. Thanks for the call. I wonder if you can talk about the foot traffic in the wireless stores both in terms of Leap coming into your markets and the $65 plan that seemed a little bit high to compete with them unless it is a much bigger footprint. Then also, what you are doing just to increase your share of gross ads coming through the door?

[Ken Meyers:]

Yes. A couple of things along those lines, so relative to the prepaid plan that we watched in Milwaukee and Chicago and we are moving to try to get that out in our St Louis market as well. We have actually seen significant increase in that segment in the two markets that we have launched it in. So we are excited for the fourth quarter, what we see relative to that and continue to promote that. As it relates to the pricing as well, I think we feel that it is a competitive price as well as with the roaming option on it. We think that it meets the segments and the footprints that we have created for it in those two markets, which is a fairly extensive footprint between the two markets. That is our position on that at this point. Relative to what we are doing in foot traffic, as we move in towards the holiday season, we have our plans around holiday promotions, which I clearly will not be discussing today relative to pricing on handsets. We have new handsets as I mentioned, the Dell which was just launched yesterday in our markets and is currently aggressively priced. We will have additional promotional pricing. We have planned service promotion offerings relative to a form of credit. We have increased advertising planned in the holiday period. We have a number of vehicles that we do during the holiday period, including special offers on Black Friday and through that weekend, freestanding inserts in the papers that we advertise in. We are looking at additional sales incentive for our distribution channels. So we have multiple programs that are either in place or will be going in place between now and the Black Friday timeframe and then throughout into the first of next year to increase that volume.

[Philip Cusick:]

Okay, but do you think that is any different from what other people are doing and any different from your normal efforts into the fourth quarter, or do you feel like your gross ad share is at a fine level already?

[Ken Meyers:]

Well, I think relative to some of the promotions we may do internally on sales may be different. I can not speak to what our competitors do. I know where our pricing will be on handsets and I think that will be aggressive and then additionally, you have not normally seen a lot of service promotion as we will be doing. So, as I said, a multi-headed approach, which I think is a little bit more aggressive than we may have done in past years.

[Philip Cusick:]

Okay, great, thank you.

[Operator:]

Your next question comes from Michael Rollins, your line is open.

[Michael Rollins:]

Hi, good morning, I just have a couple questions. First was just wondering if you could clarify within the retail ending subscriber base, could you describe the percent of that that is post pay versus the percent of that that is prepay? Secondly, as you think about what is happening in the competitive environment and it looks like you are on the surface, the gross ads that have been hit more than the churn. Would there be a concern that at some point the competitive market then begins to affect churn as well? Can you discuss maybe some of the retention initiatives that you are looking at doing? Thanks.

[Jay Ellison:]

Relative to the percentage of base, I believe approximately 95% of our customer base are in the post pay arena, however back to your other question, we have been relentless on the churn number for the last eight years, as others have tended to follow that as well. However, we are in the process. We have programs relative to contacting our customer base at certain points in their life cycle with us and we are actually in the process of making some fairly significant changes in that program to become much more proactive at different time frames in the customer life cycle, adding additional calls in the customer life cycle and additionally have some programs that will be introduced next year that will provide some proactive notification to the customer relative to their plans with U.S. Cellular. So to answer your question, we are in the process of changing our customer life cycle contact program with additional calls and more calls because we do feel that churn is clearly one of the areas we want to continue to maintain that level that we reported, and continue our efforts to drive that down.

[Michael Rollins:]

Thanks very much.

[Operator:]

Next question comes from Michael Bowen. Your line is open.

[Michael Bowen -Piper Jaffray:]

Okay, thanks very much for taking the questions. So gentlemen one thing with Leap, do you foresee any possibility of a Metro flash type of offering? When they come into Chicago, might potentially take any customers from you? Then secondly, thanks for the tightened up guidance on revenue, and I can understand the math obviously of your net retail customer ads and tightening up the revenue, but am I right to assume basically that in order to get to that revenue you have got to continue to see ARPU trend continue to move up in the fourth quarter and beyond? If you agree into that line of thought, can you split that out between maybe the increases in revenue from data versus any other aspects in your ARPU? Thanks.

[Steve Campbell:]

This is Steve. Let me take the second part of that again. We are definitely expecting continued growth overtime in ARPU. As we talk, a big part of that, in fact the fuel for that is growth in data and we would expect that to continue. I can not give you a breakout of how much ARPU will grow and the split, but sufficed to say from the numbers that we have disclosed, data continues to be a good engine for growth in ARPU overall.

[Bill Megan:]

As I mentioned in my comments, we find it very important that we get the data product offering on the prepaid platform, so that it becomes more robust as competition enters the market or heats up in that arena and we are in the process of working towards that as well. As it relates to some of the new entrants into the marketplace, luckily, we have our prepaid unlimited offering out there. Leap has not entered, Chicago. We believe it will be sometime next year. So we are preceding and trying to aggressively address that segment via the offering as well as via expanding our prepaid distribution simultaneously, so that we are in the areas. We continue to grow our footprint in the areas where we think those customers reside and that is another part of the effort to be ahead of it on the prepaid front.

[Michael Bowen -Piper Jaffray:]

Then if I could, I am curious, your commentary about the foot traffic in the stores, number one, how are you actually measuring that? Then number two, is that slowing sequentially or year-over-year or both?

[Steve Campbell:]

Well, one of the ways, we measure the foot traffic; there is a couple of ways. We know what our overall transactions in our store. With our business model, our leadership model, we are very close to the frontline the way we have designed the organization. So, clearly store managers talking to their leadership, which is out in the field, it is pretty indicative of what the traffic looks like. As well as I mentioned earlier the growth sales is an indicator of what is going on out there as well. I am sorry, what was the second part?

[Michael Bowen -Piper Jaffray:]

I was just curious, whether you are seeing the foot traffic slowing year-over-year or sequentially or both?

[Steve Campbell:]

Probably year-over-year.

[Michael Bowen -Piper Jaffray:]

Okay. Thank you very much.

[Steve Campbell:]

You bet.

[Ken Meyers:]

In fact, I know it is not a tight one for one. Directionally, our gross add in the third quarter were actually up from what they were in the second quarter. So, Jay had mentioned year-over-year is the bigger decline we saw to the extent that gross ads reflect the overall level of traffic. We actually saw a slight up tick in Q3 from Q2. Just let me add something, your earlier question on data. I will just mention that our data ARPU for the third quarter was right around $7 and that is up about 30% year-on-year. So you can get an idea of the trend there.

[Operator:]

The next question comes from Tom Seitz. Your line is open.

[Thomas Seitz:]

Thanks for taking the questions. First one just a point of clarification, the small telecom lobbing organization or Pasco supported the recent SEC order. I believe you are the largest member. Does that mean that TDS corporate supported the proposal, or was that just TDS Telecom? Then secondly, you are sitting on a pretty large portfolio of attractive unbuild spectrum. Competition seems to be getting more acute, not less. So can you talk about your plans for what you are going to do with that? Working with that then, what are the most pressing build-out requirements from the SEC that are going force your hand one way or the other? Thanks.

[Ken Meyers:]

Bill, you want to take the first part of that question from Tom?

[Bill Megan:]

Yes, I would be happy to. Our participation with Pasco represents the wire line, Tom, so it is TDS Telecom's advocacy for the proposals that were reported beyond the table.

[Thomas Seitz:]

Okay, so TDS Telecom supported the proposal?

[Bill Megan:]

Yes.

[Thomas Seitz:]

Okay, great.

[Ken Meyers:]

On the spectrum, Tom, the company has been purchasing spectrum primarily on top of where it already operates, and if you look at the AWS auction or some of the recent 700 transactions we are doing, we have been getting capacity that will allow us to better manage future technology changes by having complete spectrum to play with and any build-out requirements related to that are well in the future. There is nothing large that is staring us right in the face right now.

[Thomas Seitz:]

Okay, great, thanks a lot.

[Operator:]

Your next question comes from Kevin Roe, your line is open.

[Kevin Roe:]

Thank you, good morning. A couple of questions for Jay, first on store traffic, can you comment on how that trended during the quarter on a monthly basis? Did things get worse as the quarter progressed and did that continue into October? Second question on the unlimited, Jay, can you talk about cannibalization risk to some of your existing plans out there from this unlimited offering. The reason I ask is just looking at some of your wide area plans, you have 2,000, 3,000, 5,000 minute wide area coverage plans that start at $80 and go up to $150. I would think there would be some sub-segment of those customers that may switch down to cheaper plan with unlimited. Thank you?

[Jay Ellison:]

Let me work a little bit backwards here. On the cannibalization of the plans that you were describing I think the one unlimited plan that I mentioned was relative to prepaid and as it relates to that plan, we have seen some of our prepaid customer base move onto that plan, but we also feel by offering that plan, we are going to be able to keep that customer satisfied and keep that customer longer on the prepaid product line. If you are referencing to the general unlimited plan that we launched much earlier this year, we have not seen a tremendous amount of cannibalization. Actually when we take a look at it, we have seen more of our customers moving up into that plan and then moving down. So, that was on the postpaid side of it. On the traffic question, really, we pretty much saw that consistent throughout that third quarter, again going into fourth quarter with the anticipation of holiday. We expect to see our retail traffic clearly picking up. We already started to see some of that.

[Kevin Roe:]

Thank you.

[Operator:]

The next question comes from Jonathan Atkin. Your line is open.

[Jonathan Atkin:]

My question was asked already. Thanks very much.

[Operator:]

At this time, I am showing no further questions in queue.

[Mark Steinkrauss:]

Adrian, if we do not have anybody else waiting with questions, we can finish up the call. Everybody on the call, we are available the rest of the afternoon. So, if you got any questions just give me a ring. Adrian, back to you.

[Operator:]

Thank you. This concludes today's conference call. You may now disconnect.