Array Digital Infrastructure Inc (AD) Q1 2012 Earnings Report, Transcript and Summary

Greetings and welcome to the TDS and US Cellular First Quarter Operating Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Jane McCahon, Vice President of Corporate Relations for TDS. Thank you. You may begin.

Thank you, Louis. Good morning, and thanks everyone for joining us. I want to make you are all aware of the quarterly conference call presentation we’ve prepared to accompany our comments this morning, which you can find on the Investor Relations pages of the TDS and U.S. Cellular websites. With me today and offering prepared comments are from TDS, are Ken Meyers, Executive Vice President and CFO; from U.S. Cellular, Mary Dillon, President and Chief Executive Officer; Steve Campbell, Executive Vice President and CFO; and from TDS Telecom, Vicki Villacrez, Vice President of Finance and CFO. This call is being simultaneously webcast on the Investor Relations’ sections of both the TDS and U.S. Cellular websites. Please see the websites for slides referred to on this call including our non-GAAP reconciliations. The information set forth in the presentation today and discussed during this call contained statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the Safe Harbor paragraphs in our releases and the more extended versions that will be included in our SEC filings. Shortly after we released our earnings results this morning and before this call, TDS and U.S. Cellular filed SEC Form 8-K Current Reports, including the press releases we issued this morning. Both companies plan to file their SEC Form 10-Qs later this afternoon. As a reminder will be hosting an Analyst Day at CTIA next Wednesday, so please contact us if you’d be interested in being part of the meeting and also a reminder that our annual shareholder meetings are coming U.S. Cellulars on May 15 and TDS on May 17. Please note that the TDS meeting is being held in at different location this year, out by O’hare to avoid the expected disruptions downtown around the NATO meeting. Please keep in mind that TDS has an open door policy, so if you’re in the Chicago area and would like to meet members of management from TDS, U.S. Cellular or TDS Telecom the IR team will be - will try to accommodate you Calendars permitting. Now I’d like to turn the call over to Ken Meyers.

Thank you, Jane. Good morning. I’ll start on slide 4, TDS ended the quarter with revenues up 4%, operating income of 5% and earnings per share of 23%. TDS’s overall tax rate for the quarter was about 28.9%. The rate was reduced by 9.3% or $7.2 million, primarily due to an unrecognized tax benefit due to the expiration of a statute of limitations for certain tax years, and the correction of deferred tax balances on some partnership investments. TDS incurred a net operating loss in 2011 for Federal income tax purposes, largely as a result of the 100% bonus depreciation rules in effect of that time. We carried this Federal net operating loss back to prior years and we received an almost $60 million refund in the first quarter. The bonus depreciation rate for Federal income tax purposes for 2012 is 50%, and is currently expected to expire at the end of the year. We expect Federal income tax payments to substantially increase in 2013 and remain at a higher-level for several years, as the amount of TDS’s Federal tax depreciation reduction substantially decreases. For the full-year, we are estimating an effective tax rate at TDS of about 35%. Those same factors also affected U.S. Cellular in the quarter, and we expect a full year tax rate at U.S. Cellular of about 33% for the year. As you may have seen in the press release, TDS and U.S. Cellular did not repurchase any shares during the quarter. We determine whether to repurchase shares from time to time based on many considerations, ranging from market conditions to cash needed for known or possible requirements with many in a fund raised or other reasons in between including other facts and circumstances. Our press release has a more fulsome listing of many of the reasons we might consider purchasing or not purchasing shares. We continue to desire to repurchase shares under the existing authorizations as circumstances warrant or allow, to the extent that we do not complete the existing TDS authorization before it expires in November, we’d expect the board to approve additional authorization at that time. I’d also like to thank all of the investors that have provided us with some thoughtful ideas around changes we can make, in terms of increasing the shareholder value. We’ve received many suggestions and we are working through that. Let me finally touch on some regulatory issues, specifically the USF and Spectrum. First run USF, many stakeholders including our companies have been engaged the FCC in Washington with Congress, as well as the courts trying to augment, reinterpret or overturn the order on USF and Inter-Carrier Compensation. Everyone understands that the details do matter here. And all parties are working to shape the outcomes with their advocacy. The FCC is absorbing all this, but has not yet acted formally on most of the issues in the pending petitions. This quarter also saw the enactment of the the long awaited spectrum legislation as part of the Middle Class Tax Relief and Job Creation Act of 2012. The legislation gives the FCC needed authority to conduct the incentive options and set in motion a process to auction more spectrum over the few years. This is welcome news for the industry, the FCC has started to work to establish rules for the new bands and for the incentive options. U.S. Cellular will be involved in the process. The FCC has also initiated a rule making that interoperability, which we hope will unlock the full potential of bands, already auctioned by the FCC, by bringing U.S. carriers together into a stronger common 4G ecosystem. We believe adoption of rules mandating interoperability coupled with the enforcement of the FCC’s data roaming rules, are key regulatory under pinnings to fostering a competitive industry. Now, let me turn the call over to Mary Dillon.

Thanks Ken, and good morning, everyone. I’ll start with our successes and challenges during the first quarter and a number of initiatives we’ve launched to drive future results. I’ll start with a review of our accomplishments on the quarter starting on page 7. As a result of improved effectiveness and driving increased brand awareness, launch of our 4G LTE services, as well as strong execution by our front-line associates, we’re seeing solid progress as evidenced by a 7% increase in retail growth additions this quarter, an encouraging sign in the midst of a very competitive time in wireless. During this quarter, we added 4,000 net prepaid customers and we hope to continue that momentum with the addition of Wal-Mart distribution, which I’ll speak about more in a moment. Smartphone adoption has accelerated, representing 54% of devices sold this quarter and that growth along with continued migration to higher end belief plans has continued to drive postpaid ARPU up 5%. Also contributing to the 13% increase in operating cash flow were increases in inbound roaming, continued management of device subsidies and good cost control. Now moving to slide eight. Elevation in postpaid churn continues to be a challenge. We attribute this increase to the expanded distribution of the iPhone, as well as aggressive promotions by competitors, particularly for 4G devices and services. We expect this intense competitive environment to continue throughout the year. Growth in daily usage build on and off our networks is quite strong and we’re continuing to build capacity on our 3G and 4G networks to meet this demand. In addition, we’re managing off network usage in order to minimize the cost of outbound roaming. This continuing growth in data usage just underscores the urgency of rolling out of our 4G LTE network products and services as quickly as possible. And finally, handset manufacturers are working hard to meet our specific requirements for 4G devices. We currently have two devices and we plan to have 5 to 8 by the end of the year. We started the year with the launch of three key initiatives, which will contribute to business growth and profitability over time. So turn to slide nine, and I will talk about the first. The first of these is the commercial launch of our 4G LTE network in our Wave 1 markets, Iowa, Maine, North Carolina, Oklahoma, Texas and Wisconsin. In many of these markets, we’re the first carrier to bring 4G speeds. The first device launch was the Samsung Galaxy Tab 10.1 at the end of March, followed shortly by the Samsung Aviator Smartphone in early April. Both devices have been selling strongly. We’re now focusing our build out of Wave 2 markets and we’re on track to turn them on by the end of the year, which will bring coverage to over half of our customers. Slide 10, shows the second exciting development. The launch of U Prepaid in 450 Wal-Mart stores in mid-May. U.S. Cellular will be the carrier in 414 of those stores. This represents our first phone in a box offered at the world’s largest retailer and give us another opportunity to be were our customers want to shop. We’re actively pursuing other big-box opportunities, as well as examining our own distribution for further efficiencies. And finally, slide 11. We launched updated pricing on 1st of May with three goals to drive new customer growth, to increase profitability and to maintain ARPU growth over time. We’ve made a number of adjustments, the most significant of which is the addition to tier data pricing for smartphones. This change will incent more customers to upgrade to their first smartphone with some smaller plans and then allow us to move them up the ARPU chain as they become more experience with their devices and consume increasing amounts of data. Additionally, these changes will help us better monetize the consumption of our most heavy data users. We made pricing changes to both retail and SMB. We have added new options for the small medium business market and we continue to retain the very effective loyalty rewards program for all of our customers. Finally, as a part of our ongoing efforts to control expenses, we are extending our upgrade period from 18 to 22 months. It will not be offering a phone replacement program on the new plans, as we have not seen enough benefits for this offering in relationship to the cost. So with that, I’d like to turn the call over to Steve for a review of the quarter’s financial results.

Thank you, Mary and good morning, everyone. U.S. Cellular’s financial results for the quarter reflect positive growth in revenues and operating cash flow year-over-year, as we improved ARPU and managed cost. Customer results were mixed, as we improved retail gross additions, but as Mary said still challenged with retaining customers in the extremely competitive marketplace and a still somewhat sluggish economy. As shown on slide 12, first quarter retail gross additions were $273,000, up 7% from $256,000 in the prior year quarter. In the postpaid segment, there was a net loss of 38,000 customers, as the increase in retail gross additions was offset by an increase in churn. In the prepaid segment, we added 4,000 customers. So, in total, we lost 34,000 retail customers in the first quarter this year compared to a net loss of 31,000 last year. Postpaid churn shown on the next slide increased to 1.57% from 1.37% last year. As Mary commented earlier, we attribute this increase to the expanded distribution of the iPhone and aggressive promotions by our competitors, particularly for 4G devices and services. We continue to add customers to our Belief plans, 211,000 during the first quarter, as they recognize the value and exceptional service we provide. We currently have 3.3 million customers on our Belief plants and continuing to add and migrate customers to these plans is important to bringing churn back down. Slide 14 shows the trends in smartphone sales, penetration growth and postpaid ARPU. During the first quarter, we sold 415,000 smartphones, which represented 54% of the total devices sold. This compares to the first quarter of 2011 when we sold 337,000 smart phones or 42% of total units sold. Smartphones now represent 34% of our postpaid subscriber base, compared to 20% in the same period last. While the overall cost to subsidize these devices is greater, we expect average revenue per customer will continue to benefit our results over time. As you can see on the graph at the far right, postpaid ARPU has steadily increased over the past several quarters, due to strong smartphone sales, as well as continued migrations to the higher ARPU Belief Plans. Postpaid ARPU was $54 in the quarter, up 5% from $51.21 a year ago. Turning to our financial performance. Service revenues for the quarter were $1.24 billion, which is an increase of $39 million or 4% from last year. Breaking that down a bit further, retail service revenues were $888 million, an increase of 3% with billed APRU growing 6% year-over-year. Inbound roaming revenues increased, growing $16 million or 24% year-over-year to $80 million, primarily a result of increased data roaming traffic. We expect to see continued, but probably more modest growth in this high margin revenue stream over the remainder of this year. System operations expenses of $233 million were up $16 million or 7% year-over-year. This was due to several factors, including expenses associated with the deployment of the 4G network, a 3% increase in the number of Cell sites in service and higher data usage and roaming expenses, as our customers use more data services both on and off our networks. As daily usage continues to grow significantly, we’re implementing a number of measures design to minimize the impact on our expenses. The net loss on equipment for the quarter was $190 million, down $4 million from last year, primary as a result of fewer equipment transactions. The average loss for device sold was flat year-over-year, despite the shift in mix to smartphones. So given the 23% increase in the number of smartphones sold, we believe that we’ve done a very good job of controlling our equipment costs at better balancing the types of devices offered and our promotions on them and introducing lower cost entry-level smartphones to broaden our lineup. We expect that equipment pricing will continue to be very aggressive across the industry and that our costs will be impacted by the continuing shift in mix to smartphones and the introduction of additional 4G devices later this year. SG&A expenses of $442 million were flat year-over-year. Operating cash flow for the quarter of $230 million was up 13% compared to last year’s $203 million. As a result, the operating cash flow margin was 22.4% compared to 20.6%. Continuing on slide 16. Total investment and other income net for the quarter totaled $9.4 million including earnings of approximately $17 million related to our interest in the Los Angeles partnership. Net income attributable to U.S. Cellular shareholders totaled $62.5 million or $0.73 per diluted share versus $35.2 million or $0.41 per share in 2011. The effective tax rate for the quarter this year was 27.1% compared to 38% last year. As Ken said earlier, the decrease in the tax rate was due to benefits related to expiration of the statute of limitations for certain tax years and the correction of deferred tax balances related to certain partnership investments. So looking at the full year, we currently expect the effective tax rate to be approximately 33%. In the first quarter, we generated cash flow from operating activities of $257 million essentially equal to last year’s number. Cash use for additions to property, plant and equipment in the quarter was $209.2 million, reflecting significant expenditures related to our 3G and 4G networks, as well as for our multi-year enablement initiatives. U.S. Cellular’s balance sheet remains sound and we have significant liquidity and financial reflexibility together with expected cash flow from operations and funds available under our revolving credit facility to meet our financing needs. At March 31, cash and short-term investments totaled $627 million and we have about $300 million of unused borrowing capacity under our revolving credit agreement. Our guidance for the full year 2012, which is unchanged from that announced earlier this year is shown on slide 17, as well is in the press release. Very quickly for the key measures, we’re estimating service revenues in the range of $4.05 billion to $4.15 billion. Operating cash flow in the range of $800 million to $900 million and capital expenditures of approximately $850 million. Now I’ll turn the call over to Vicki Villacrez to cover TDS Telecom.

Thank you, Steve. Good morning, everyone. Before we begin to review our results for the first quarter as shown on slide 19, I’d like to identify several enhancements to our reporting. First, TDS has re-evaluated its reportable business segment and our hosted and managed services business is now being reported separately as a segment. While HMS is still relatively small, we expect it to be an important contributor to our performance in the future and want to provide additional visibility. We’ve also changed how we are reporting our ILEC and CLEC revenues to better reflect the way we focus on our customers, and that is between residential and commercial customers. To this end, we’re reporting the number of voice, data and IP TV connections for both residential and commercial operations. TDS Telecom’s first quarter performance was highlighted by the growth in HMS revenues, primarily provided by our acquisition of OneNeck in June of last year. ILEC and CLEC connections continue to decline, but the rate of ILEC physical access line loss moderated slightly. We are generating continued strong growth in our commercial managed IP products and services, initial residential IP TV connections and Triple Play Bundles. Overall, however, operating income decreased due primarily to $5.2 million of discrete items that were included in the first quarter of 2011 as well as the decline in high margin wholesale revenues. Turning to slide 20, revenues for Telecom’s combined operations were up 3% from last year. ILEC revenues decreased 3% overall. Residential revenues were stable, as a result of increases in broadband revenues, offsetting voice line losses. Commercial revenues dipped 5% due to continuation of declines in traditional legacy revenues, partially offset as more businesses move to IP-based products and services. Wholesale revenues declined $3 million or 5% primary as a result of continued declines in access revenues with lower minutes of use and changes in regulatory recovery rules. CLEC revenues were down 3%, as the decrease in revenues caused by the declining number of CLEC residential connections exceeded the increase in commercial revenues for the quarter of 1%. As mentioned, HMS revenues were up $11.3 million, mostly driven by the acquisition of OneNeck. Turning to slide 21, you can see how residential and commercial revenues trend with the number of connections for both the ILEC and CLEC. ILEC residential revenue per connection increased 2% year-over-year, primarily reflecting better broadband penetration and our customers demand for higher speeds and their willingness to pay for them. This is a metric we’ll continue to monitor closely and expect to grow as we roll out IP TV. ILEC physical access lines continue to decline, decreasing 5% overall. On the residential side slide 22, our star voice packages continue to help us mitigate our line loss. At March 31, we had 201,000 customers on these plans, which are 57% of our residential customer base, that is up from 49% at this time last year. Turning to slide 23, while the growth in broadband subscriber additions has slowed with residential subscribers growing 3% year-on-year. ILEC residential broadband revenues remains an important part of our revenue focus and our bundle strategy. We continue to attract new customers and they are taking higher speeds. The number of residential broadband subscribers taking speeds of 5 megabits or greater is now 65%, and 20% are taking speeds greater than 10 megabits. As we roll-out IPTV, we are offering speeds up to 25 megabits in our copper markets and up to 50 megabits in our fiber markets. With our copper and fiber markets split about evenly. Our current expectations are that we will enable our network with capability for IPTV in 19 markets. Residential broadband penetration was 62%, of primary residential lines, and residential broadband has trended upwards to $38 as migration to higher speed service offsets competitive pricing pressures. We continued to emphasize our triple play bundles, voice, broadband and video, with video offered primarily through our dish partner - our partner DISH Network. We added nearly 1000 net triple play subscribers in the quarter, bringing our penetration of customers to 30%. Churn on our triple play customers continues to remain very low at roughly .05% per month. As you know, we’ve had measurable success with our bundled offerings up 68% of our residential customers on a double or triple play up from 64% last year. In the commercial segment on slide 24. We continued to lead with our hosted IP service, we call managed IP, for Telecom’s combined operations, we now have 64,500 managed IP connections, an increase of 88% over last year. Turning to the P&L on slide 25. Consolidated cash expenses were up 18% for the period. ILEC cash expenses increased 12%, which includes the effects of several discrete items which reduced 2011 expense by $5.2 million, and were not repeated this quarter. Excluding these items, ILEC cash expense increased 6% as cost associated with IPTV such as network maintenance and higher contractor cost drove higher cost of service. CLEC expenses were relatively flat and HMS expenses were driven by the acquisition of OneNeck and investments we are making at this early stage to build an HMS management team and products and services to support our strategic vision of an HMS business that can move the needle in terms of Telecom’s growth and profitability. All in, operating cash flow for the quarter was $60.7 million. Slide 26 shows our 2012 guidance, unchanged from our year-end call. As we mentioned on the last call, our 2012 CapEx guidance reflects investments that we are making to enhance our network, to deliver competitive broadband services, improved systems that support our sales and customer service processes and enable our ability to expand our IP TV offering. Thanks for your interest. And I will now turn the call back over to Jane McCahon. Jane?

Thanks. Lewis, we’re ready for Q&A and ask Alan Ferber, our Chief Brand and Strategy Officer to join us for Q&A.

We will now be conducting a question-and-answer session. [Operator instructions] Our first question comes from the line of Simon Flannery with Morgan Stanley. Please proceed with your question.

Thank you very much. Good morning. Mary, on the churn. Can you just get a little bit more specific? Are we talking about primarily voluntary churn or is there any trend in bad debts or involuntary? And, is there - we’d seen actually churn reduced at some of the other carriers this quarter. So, just be interested in how you think this trends through the year? And then on the tiering, I know it’s very early days, but what do you expect the near-term impact on ARPU will be? Do you expect some people trading down to sort of lower tiers to diminish the impact? I know you expect good ARPU growth over time. But how should we think about the impact in the next couple of quarters? Thanks.

Simon, on the churn question, thank you. It’s really more about voluntary than involuntary. And I will just add that, we’ve seen some moderate improvement month-by-month since December on our voluntary churn. So, I see that as an encouraging sign, but it’s still elevated versus a year ago. And it’s clearly something in this competitive marketplace, in some ways, we’re not surprised about it and we’re very focused though on putting our best foot forward to both continue to drive the strong growth as friends that we’ve had, as well as tactics around churn mitigation. So, we’re really focused on both of those and we’ll continue to watch and look to lower that. And on the ARPU on the pricing, I’ll just start this by saying maybe we are looking for any short-term change on ARPU and the price. And the pricing is going to be with us for a while and there is dynamics in there that are both about bringing in new customers in smartphones and entry-level plans as well as to bring people up the ARPU curve to those who are interested in getting more data and paying us for that data. So those will balance out. Overtime, we see this as an opportunity to improve ARPU over time, won’t be in the short-term.

Our next question comes from the line of Ric Prentiss of Raymond James Financial. Please proceed with your question.

A couple of questions. First, on the wireless side, on the roaming business. You mentioned where you expect modest year-over-year growth - that kind of - below double-digit, higher than double-digit, just trying to gauge it. And do you expect the seasonality to kind of playout where the summer months are heavier still?

Yes. So, we would definitely expect to see normal seasonality during summer months as we always do. And I think for the full-year, we’d be talking on a year-over-year basis, really overall single-digit as opposed to the double-digit numbers that we didn’t think.

Okay. And then on the EBITDA line. Obviously a good EBITDA in the quarter. If you kind of annualize that, it would suggest higher - above the high-end of the range. And, Mary, some of the stuff you’re putting in place, the 22 month versus 18 month upgrade, no more phone replacements for new Belief, the tiered data pricing, some of that should actually probably help you. But, I’m just trying to think through what are your thoughts as far as EBITDA and maybe also throw in the percent upgrades in the quarter? Maybe that was down also.

Well, the percent upgrades in the quarter were about 10%, slightly under 10%, 9.5%. There’s a lot of moving parts as it relates to the revenues and cost of the business. And so while we continue to grow, expect to grow our gross adds, that obviously has an LOE cost to it as our data usage for everybody obviously in the industry is continuing to grow. That’s the pressure on cost and we’re taking several steps to mitigate that, but that will continue to increase. So, while we also - we see some opportunities to improve profitability along the lines of things you described like changing some of our policies, implementing new pricing, we think that range is still the right range in terms of expectations. Yeah, the other piece is that ETC revenue, we know is going to step down. And, that’s high margin revenue and that’s part of the plan.

Okay. Thank you.

Steve, is there - let me ask Steve if you would add anything else to that.

Well, I think in addition to the things that Mary mentioned, there is going to be a seasonality effect as well, Ric, as we enter into the heavy promotional fourth quarter period of time, you’ll see device pricing very aggressive in that period probably more so than you see in the first quarter of the year. And also, remember that we just launched the LTE network and we’ll be rolling that network out further over the course of the year and that certainly brings costs with it. So those would be a couple of things in addition to the gross add and ETC revenue impacts that Mary mentioned.

And the ETC, was that expected to drop-- was it July 1, the effective day that cuts it like 20% or so?

Right. So, the step-down begins at July 1, and it’s a 20% step-down. So in effect, you have about a 10% step-down for the full year.

Our next question comes from the line of James Moorman with S&P Capital. Please proceed with your question.

Yeah. Thanks for taking the question. Two questions, first, in terms of the Wal-Mart agreement, lot of the other prepaid carriers have noted a lot of pressure at the low end, I guess, especially with lifeline products and just have you kind of factored that in and you could kind of concerned about that with your new offering? And also on data, have you kind of thought about offering, now that you guys are offering tablets and more smartphones, about offering a family of data device plans, where you can use all your devices on one data package?

So, I’ll take the Wal-Mart, and ask Alan to talk about the data plan. On the Wal-Mart piece, we see it is really opportunity for us. Obviously, there’s growth in the prepaid market, there’s about a quarter of sales for that market happening in big box retailers, so for us to have distribution, to have products and services available there, represents see really, we think incremental revenue in profit for us over time.

Hi. This is Alan Ferber. On the family data plans, obviously that’s certainly something that we expect to hit the marketplace later on this summer. Some of the moves we made with our new data pricing allows us increased flexibility for our family plan customers, as well as kind of mix in match, family data to best meet their needs. In terms of us launching a more formal family data plan, it’s something we’re looking at, but we don’t have anything to actually announce at this time.

Our next question comes from the line of Sergey Dluzhevskiy of Gabelli & Company. Please proceed with your question.

Good morning, guys. Two questions. One question on share repurchases, could you expand a little bit on your thinking on share repurchases going forward. Clearly, the management believes the stock is undervalued, but the company didn’t buy back any shares in the first quarter, and I was just wondering whether there were any legal reasons why you couldn’t buy back stock or the decision was primarily driven by market conditions and business reasons. So if you could just comment on stock buybacks going forward? And the second question, if you could talk a little bit about your spectrum position in non-operating markets as that covers about 45 million people, maybe you can talk a little bit about average spectrum depths that you have across those markets and what are your plans for these markets and whether it makes sense to monetize some of those spectrum holdings, assuming you don’t plan to rollout services in some of those markets? Thanks.

Sergey. Good morning. It’s Ken Meyers. So starting with the share repurchase, we have an active authorization for the board for both companies, which - it is something that we had been actively pursuing before we started working on the share consolidation project. It is something that we are committed to continuing on with. There are various times for a lot of different reasons that we kind of list out in the press releases why we may or may not be in the market at any point in time. It doesn’t change our long-term view of both the attractiveness of the share repurchases and our desire to execute. To the extent that we didn’t get it all done by the end of this year, I expect that we’re just going to get another one. So, when the time is right and appropriate, we’ll be in the market. There are times that are not right and appropriate, and that’s about as far as I’m going to go. Spectrum -

Just on the non-operating markets question, Sergey, I think our position has been Spectrum is obviously a valuable commodity - a valuable asset, I should say. And so for us, being in a position to have Spectrum that if we need to trade for other Spectrum in markets, I don’t think we’re looking to monetize that Spectrum right now. It’s an asset for us.

Right. What is your average spectrum depths like, I know that they cover 45 million people, but what is the size of the license on average if you can disclose it?

We can circle back with you on that specific -- question. Okay.

Our next question comes from the line of Stephen Mead with Anchor Capital Advisors. Please proceed with your question.

Good morning. Can you provide just some comparative metrics on a Belief - or the Belief customer versus total company averages in terms of ARPU or churn or just help out on that?

Sure. Hi, Stephen, this is Alan Ferber. I don’t have the specific numbers in front of me. But in general, the Belief Plan customers have both higher ARPU and lower churn. The ARPU is roughly 30% higher, 40% higher than the non-Belief Plan customers.

And then how many Belief Plan customers did you add in the quarter?

We added about 211,000 in the quarter we have about 3.3 million total.

Okay. And then can you also in terms of the SG&A line that was flat year-over-year. And I was just wondering, how that trend in terms of year-over-year comparison on the selling side and is there that much of a cost in the second quarter associated with the Wal-Mart rollout?

Well, on a year-over-year basis, as I said in my prepare comments and as you mentioned, it is - the trend is flat year-over-year within. So you asked about selling and marketing, the year-to-year difference is a couple million dollars. There are some pluses and minuses in that number, for example year-over-year, our advertising in the second - I’m sorry, in the 2012 period was down a little bit from the previous year, because first quarter last year was a heavy spend, as we were right in thick of still launching the Belief Plans. So that would be one factor. Also we had more, when you looked at the combination of new gross ads and renewals and upgrade transactions, higher numbers of transactions. So year-over-year commissions would have been a little higher to offset that advertising impact. So netting it out pretty flat year-over-year.

Okay.

And I mean, as far as the trend going forward, I think when you look at the guidance, you can see where we’re forecasting for the year and we’ve mentioned the things that we think will impact the year-to-year comparisons, they are more about as we said acquisition costs related to new ads, equipment pricing, system operations cost, selling and marketing will not be a big factor in the year-over-year comparisons as we move ahead into the second quarter. As far as Wal-Mart is concerned the implementation expenses associated with Wal-Mart, those are also reflected in the guidance that we’ve provided.

Okay. Are there follow-on the big box potential the partners are - what we expect in that area.

Yeah, I would we’re always looking for opportunities to expand our points of distribution.

Okay. And then the [indiscernible] sort of question in terms of the metrics on the telephone side or your sort of the Internet TV customers, would you do refer them to?

Yeah. This is Vicki. Our IPTV customers are being reported in total for our three markets that we have launched for residential connections in the ILEC, and so that is the number of customers and you can see that, that grew substantially in the quarter year-over-year to 4900.

So the metrics, in terms of revenue and ARPU contribution from the different from that base?

So, it’s pretty early yet to start reporting that. As you know, we’re in the process of enabling a number of market rollouts. And those are metrics that we’ll begin to reported as we move forward.

[Operator Instructions]. Our next question comes from a line of Michael Rollins with Citi. Please proceed with your question.

Hi. Good morning. Just kind of curious, if you could give us an update on the data roaming front. It seems like, if you go back a few years, one of the things that, you guys were able to evolve with - the industry is getting competitive access to voice roaming. Where are we on a 3G or 4G database in terms of, you being able to have competitive access to roaming and how important is that for your data offering going forward?

Well, Mike, I think I’d start by saying, as far as the 3G - in terms of 3G technology, we have roaming agreements in place with a couple of the major carriers, and we believe we’re well covered in that respect. Going forward, we think it would be, will be important to have 4G roaming agreements and we’re continuing to work with frankly all the - many of the carriers. So those that we currently work with, as well as other carriers where 4G would be enabled by the move to the LTE technology. I’m sure you appreciate that moving to 4G carries with it both the business challenges of getting agreements in place, but also technical challenges, given the different bands of spectrum that are involved. So that’s something that we’re actively working. We don’t have anything to report today in terms of consummated agreements, but it’s important to the business and we’ll certainly continue to pursue it.

What proportion of your roaming today is coming from data or maybe put another way, is the growth in roaming largely coming from data as opposed to voice at this - ?

Yes. The growth in roaming is coming largely from data.

Our next question comes from the line of Ric Prentiss with Raymond James financial. Please proceed with your question.

Thanks. I’m prepared to jump in for a follow-up. I wanted to ask two if I could. One on the TDS side, up the question is with U.S. Cellular, TDS EBITDA was $61 million in the quarter, your guidance for the year stays at 245 to 275 obviously, if you just try to annualize it, you’re heading towards the low end of that guidance. What are you seeing as far as the trends in the quarters that give you comfort it can be in the guidance as the guidance at risk, just kind of thinking through the seasonality on the TDS side.

Sure. This is Vicki. Good morning. As you look at - yes, the quarter was down. One of the things, our margin and our operating cash flow continues to reflect our downward pressure on our - from our higher margin legacy revenues, voice revenues and the regulatory revenues. The replacement of those revenues really are on a lower margin basis. Having said that, as the - as we look at the outlook with the restructured mechanism that won’t go in place until July 1, we have lost safety net revenues in the first quarter and that will continue in the second quarter as well as there are changes with originating interstate, voice traffic that is moved down to interstate rates for the first six months, that will move back up to intrastate rates on July 1. So, there’s a lot of things with this order that we have a lot of puts and takes. The restructure mechanism starts to kick in July 1 and then we’ll start to get a pickup in the latter half of the year.

Okay. And then, for Mary, several of the regional carriers introduced the iPhone, Alaska and Telos, a couple of other guys, what are your current thoughts on the iPhone, given the competitive environment out there?

Right. Well. I’d say a couple of things. We’re very excited with the lineup of devices that we have, we’ve got absolutely terrific devices now and coming as well as several of – as I mentioned LTE devices through the year. So we believe that we’re very competitive on that front. Having said that there is obviously a market for the iPhone and if in the future terms were right for us, we’d certainly entertain that. But our philosophy right now is to play our offense and use the tools in our tool kit and continue to drive our business forward.

There are no further questions at this time. I’d like to hand the floor back over to Jane McCahon for closing comments.

I’d like to thank everyone for joining us this morning and look forward to seeing many of you in New Orleans next week. Thank you.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.