Telephone and Data Systems, Inc. (TDS) Q4 2007 Earnings Report, Transcript and Summary

Good morning. My name is Brooke and I will be your conference operator today. At this time, I would like to welcome everyone to TDS and U.S. Cellular Year End Earnings 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. I will now turn the call over to Mr. Mark Steinkrauss, Vice President of Corporate Relation. Thank you. Mr. Steinkrauss, you may begin your conference.

Thank you, Brooke and good morning everybody. Thanks for joining us again. With me this morning are Ken Meyers, Executive VP and CFO of TDS, Steve Campbell, Executive VP-Finance, CFO and Treasurer at U.S Cellular, Bill Megan, Executive VP-Finance and CFO with TDS Telecom and also joining me are Jack Rooney, CEO U.S Cellular and Jay Ellison, Executive VP and Chief Operating Officer at U.S. Cellular. A replay of this teleconference will be available today at 1:00 PM Chicago Time and will run through midnight, Tuesday March 4th. Replay number is 800-642-1687, pass code 37621356. For international callers the number is 706-645-9291, same pass code. This call is being simultaneously webcast over the Investor Relations sections of both the TDS and U.S. Cellular website. The webcast will be available for the next two weeks, after which it will be available in the conference call archives. Please recall archive calls are not updated. We will be making some forward-looking statements today, so please review the Safe Harbor paragraphs in our releases and the more extended versions on our websites, as well as in our filings with the SEC. Shortly after we released our earnings results on Friday afternoon, TDS and U.S. Cellular filed 8-Ks. The 8-Ks include both press releases we issued on Friday afternoon and some additional information and I encourage you to take a look at these documents. Also, on Friday afternoon, both companies filed their SEC Form 10-Ks for the 2007 calendar year. Both press releases have been posted to the TDS Internet homepage and U.S. Cellular has posted their release to their website as well. You will also find posted on our website additional information of reconciliation of any non-GAAP financial measures that maybe used my management when discussing the operating data during today's teleconference as well as the company's guidance for 2008. All of this information is now included in a separate page entitled, Guidance and Reconciliation to make it easier to find. The information can also be accessed on the conference call page of the Investor Relation sections of both websites. Please note that the comparisons made by the speakers today in their prepared remarks are fourth quarter, year-to-year unless otherwise indicated. If you have an interest in meeting with us please note that we will be attending the Raymond James 29th Annual Institutional Investor Conference, actually tomorrow in Orlando and later this week, we will be meeting with investors on Wednesday and Thursday in New York City. So, if you would like to get together with us, just give me a ring. Let me call your attention to a line item on pages 6 and 7 of the U.S. Cellular release and pages 8 and 9 of the TDS release, its entitled quote Loss on Asset Disposal-Exchanges. The item is composed principally of three items. Normal gains and losses related to disposal of assets trade in of older assets, replacement assets and other retirements. Secondly, $20.8 million loss related to the exchange of assets between U.S. Cellular and Sprint recorded and announced in December, and $14.6 million reflecting the result of a physical inventory related valuation and reconciliation. There's more information about all of this in the 10-K, you can take a look out at it there. All of the items are non-cash, as you know FCC Auction 73 is still underway. U.S. Cellular is participating in the auction indirectly through its interest in Kings Street Wireless. As, a consequence, we will not entertain any questions of any sort pertaining to the auction. When the auction is complete and information about the results is public, we will be pleased to respond your questions at that time. Well thank you, for helping us with this. And now I am going to turn the call over to Ken Meyers.

Thank you, Mark. Good morning and thanks for joining us today. I have just a few comments I'd like to make before turning the call over to Steve Campbell and Bill Megan, who'll cover the operating results in detail leaving plenty of time for your questions. The fourth quarter continued the trends seen throughout the year. Strong year-over-year growth in wireless revenues, good wireline cost control and substantial increases in operating cash flow. For the full year, TDS produced 10.6% increase in revenue, 16% increase in operating cash flow and 27.9% increase in operating income. We ended the year with a very strong balance sheet with nearly $1.2 billion in cash, all which is in treasuries and virtually unused credit facilities giving us a great deal of financial flexibility. During the last quarter, TDS bought back nearly 594,000 special common shares. Since June, when we initiated our repurchase program, we have acquired almost 2.1 million shares, spending about $127 million under the existing $250 million three year authorization. Also, I am pleased to report that we continue to make progress strengthening our reporting controls and processes. We've now remediated two of the remaining three material weaknesses. This work is not over. We still have one more to fix and we will be continuing to refine processes as we go forward. The 10-Ks we filed on Friday have all the relevant details. In summary, 2007 was a very good year with strong growth in key financial metrics and we approach 2008 with the same customer commitment and customer focus that drove those 2007 results. Now let me turn the call over to Steve Campbell the CFO at U.S Cellular. Steve?

Thank you, Ken, and good morning everyone. I am very pleased to report that U.S Cellular finished the year 2007 with another quarter of solid results. At December 31st, our customers totaled 6.1 million, up 5.3% year-over-year. And our retail customers totaled 5.6 million, up 6.5%. Retail net activations for 2007 were fairly strong, up 12.1% year-over-year, although we did experience some softness in the fourth quarter and achieved less than expected results. As you probably know, the fourth quarter was a very challenging one for the industry, with several competitors in the retail postpay segment, a part of the market where we focus, reporting year-over-year declines in net activations. At December 31st, postpay customers were approximately 95% of our total retail customers. Postpay net activations for the quarter were 70,000 compared to 94,000 last year. Total retail net activations for the quarter were 64,000 compared to 98,000 last year. The retail postpay churn rate for the quarter was again very solid at 1.5% inline with prior year and actually a tick better than the 1.6% reported for the third quarter of 2007. We also achieved nice growth in average monthly revenue per customer. ARPU rose to $52.46 for the quarter, up 9% year-over-year. Service revenues for the fourth quarter were $958 million, up 15% from the prior year. The increase in service revenues was driven by growth in the subscriber base as well as by higher ARPU as I just mentioned. Key drivers of our growth in ARPU were the popularity of our national, wide area family calling plans and higher data revenues. Data revenues for the quarter grew 65% to $108 million and represented just over 11% of service revenues. Other factors included increase in inbound roaming revenues, universal service fund contributions charged to customers, and ETC revenues. Turning to cost and expenses. The net equipment subsidy for the quarter was $104 million up 28%. Factors in this increase included both modestly higher volume as well as the higher net subsidy per unit reflecting both the shift and mix towards higher end handsets that enable advanced data services and very aggressive promotions across the industry. We've experienced very solid growth in ARPU this year and in data revenues in particular, and the equipment subsidy as a cost of realizing those additional revenues. System operations expenses for the fourth quarter were $188 million, up 10%. The increase was driven by 8% increase in the number of cell sites in service and increased in off-network usage by our customers and 21% increase in average minutes of use per customers. Factors that helped to hold down costs in this category were a lower cost, permitted of use on our own network and a decrease in outbound roaming cost per minute as we have benefited from lower negotiated rates. Selling, general and administrative expenses for the fourth quarter were $114 million up 11.6%. Key components of the increase were higher selling expenses associated with the growth in customers and revenues, and higher advertising expenses primarily related to media purchases. We've mentioned in previous quarters that we expect that adverting expenses would trend higher in the second half of the year. Another significant factor was higher G&A expenses related to Universal Service Fund contributions. However, remember that USF contributions are largely offset in revenues. Operating cash flow for the quarter totaled $253 million up 21%. The operating cash flow margin was 26.4% of service revenues, up 1.2 percentage points from 2006. Below the line, investment and other income for the quarter was $10 million, down from $35 million in 2006. The decline is due primarily to the absence of two items that provided a net benefit to our 2006 results. The first item was a gain of $70 million related to the sale of the Company's interest in Midwest Wireless Communications to Alltel. That gain was offset by a loss of $46 million, representing the fair value adjustment on derivative instruments. As a reminder U.S. Cellular's derivative instruments were settled during the second quarter of 2007. Equity in earnings of unconsolidated entities for the quarter was approximately $20 million, including $17 million from the Company's investment in Los Angeles partnership. And net income for the quarter was $29.2 million or $0.33 per diluted share. Next I'd like to make just a few summary comments about our outstanding performance for the full year of 2007. Retail net activations were 333,000 up 12% year-over-year. In the retail, postpay segment where we focus, net activations were 351,000 up 24%. Retail postpay churn rate was 1.4% compared to 1.6% in the prior year. ARPU grew 8% to $51.13. Service revenues were approximately $3.7 billion up 14.5% and data revenues grew to $368 million, an increase of almost 70%. Operating cash flow totaled $1.33 billion up 19%. And the operating cash flow margin was 28.1% of service revenues up 1.2 percentage points from 26.9% in 2006. US Cellular achieved these strong results in 2007, because we executed well across our entire organization to deliver the very best in customer satisfaction at every customer touch point. Existing and potential customers appreciate the value inherent in our suite of national, wide area and family calling plans that were introduced in the second half of 2006 and continue to purchase and migrate to them faster than we anticipated. At year end, roughly 60% of our postpay customers were on these plans. There were also was high demand for our expanding suite of easyedge data services, such as My Contacts Backup, Tone Room, and Your Navigator. As I just mentioned, our data revenues were up almost 70% year-over-year. Our handsets provide customers with a wide range of desired style and functionality and have contributed to the significant growth in our data revenues. Over the course of 2007, we introduced 21 new devices including new Smart Phone offering such as the Motorola Q and we are excited about the introduction of the BlackBerry Pearl this quarter. We know from our surveys and other customer related research that overall network quality remains the number one criterion, that drives customer satisfaction and we're committed to ensuring that our customers have access to a superior network. And our associates are delivering on this commitment. In 2007, we topped the J.D. Power and Associates call quality rankings in the North Central region for the fourth consecutive time which speaks to the value of the significant investments we make in our network. During 2007 we added 458 new cell sites for the network which now has almost 6400 total sites in service. And in another proof point of our strong customer focus, PC Magazine readers voted U.S Cellular the top contract postpay wireless provider in 2007. As I indicated U.S Cellular is generating strong cash flow from operations. For the year, operating cash flow was $1.33 billion. The company used the strong cash flow to fund capital expenditures of $565 million, repay notes payable of $35 million net and repurchased 106,000 of its common shares at a final net cost of $83 million. At December 31st, the Company's revolving credit line of $700 million was essentially unused and its cash balance was $205 million. U.S Cellular did not launch any significant new markets during 2007 and has no current plans to do so in 2008. Instead we expect to remain focused on increasing customers, revenues and profitability in our existing markets. However, we will off course continue to consider attractive opportunities to expand and enhance the quality of our footprint, as we did with the acquisition of the Iowa 15 [ph] market and the exchange of licenses with Sprint Nextel in 2007. All in all it was a very strong quarter and full year for U.S Cellular, due to the significant efforts of our 8400 associates who are dedicated to providing the ideal experience to every customer at the time of every contact. The final topic that I'd like to cover this morning is our guidance for the full year 2008 which is contained in Friday afternoon's press release. In summary, for 2008, we expect growth in customers, service revenues and operating cash flow. We intend to continue our focus on improving operating cash flow margin as we did in 2007. However, as you all know there is significant uncertainty in both, the overall economic environment and the wireless industry. Our efforts to grow the business and improve its profitability, obviously will be affected by economic and industry developments and by our ability to anticipate and respond effectively. That concludes my prepared remarks this morning. Now I'll turn the call over to Bill Megan, who will discus the results for the TDS Telecom. Bill?

Thank you, Steve. Good morning everyone. I will begin by discussing Telecom's operating results for the quarter, then update you on several of our operational initiatives and finally provide our guidance for 2008. For the quarter, combined ILEC and CLEC revenues declined 3%, while operating cash flow increased by 13%. The percentage decline in revenues was roughly even in both our ILEC and CLEC operation. For the ILEC, the decline was primarily due to lower local service revenues in compensation for network access including compensation from state, national revenue approval. Partially offset by growth in data revenues related to DSL and long distance services. For the CLEC, there was a small decline in network access revenues and growth in our commercial segment was offset with attrition in the consumer segment as we had shifted our focus in acquiring new customers to the commercial space in most of our CLEC market. The improvement in operating cash flow and operating cash flow margin has been driven by cost reduction initiative, including combining the support functions of ILEC and CLEC. As we've integrated those functions, we have been able to lower support headcount by 8% over the past year, also maintaining high levels of customer satisfaction. ILEC access line equivalent, access lines adjusted to reflect voice grade equivalents grew 1%, physical access lines declined by 5%. This is an acceleration for us for full year 2006 we ran about 3% line loss. As we discussed in our second quarter call in mid 2007, we have seen a pick-up in cable and wireless competition. A portion of the line loss is due to our customers taking DSL service and removing their second line. Line two losses over the past year have been 5700 of the 31,000 line loss year-on-year. That transition for our customers to move to high-speed data service is a very good development though it does adversely impact this line metric. The line two losses have been fairly consistent for the past several years and we anticipate it continuing. Now, with respect to our data service, ILEC DSL customers increased by better than 38,000 or 36%. Penetration of our physical lines is now at 24.5%. Many of our DSL customers migrate from dial-up Internet service and that accounts for a good portion of the decline in dial-up service that we have reported. We continue to invest in our network. Capital expenditures were $128 million for the year on a consolidated basis, roughly flat with 2006. With this investment we are enhancing our broadband service. 86% of our ILEC lines are equipped for DSL service. With 71% of our customers taking speeds of greater than 1.5 megabit and 35% of its speeds from 3 megabit to 15 megabit service. We've also been developing a fixed wireless capability in several of our CLEC markets. And our newest edition is WiMAX, service over 2.5 gigahertz license spectrum in Madison, Wisconsin. We are also continuing with step to strengthen our relationship with our customers by offering a full array of voice broadband and video services. Our customers have responded favorably to our bundled service offering. Penetration of voice packages to residential customers in our ILEC market grew to 27.6% during the fourth quarter of 2007. Our Dish Triple Play campaign continues to go well as well and we grew Triple Play subscribers by 6600 in the quarter. We have implemented additional initiatives to help mitigate churn including net sales program, using a specialized sales team armed with a variety of tools including discounts, bundles and other promotion. We've also a new mover program targeting referrals from builders, developers, real estate agents and other local contact to encourage new customers moving into our territory to take our service. To summarize the results, for 2007, we saw an increasing competitive intensity and that has put pressure on our lines and on our revenues. We are counter-attacking with Triple Play bundles in promotion and have had success adding data and video customers. We continue to invest in our network and this is driven by our belief that with a competitive network and a robust service offering we can win as customers choose their high-speed data provider. And finally, we have implemented a substantial set of initiatives to control cost as we continue to enhance our network capabilities and our broadband service offering. Looking forward to 2008 our guidance is consolidated telecom revenue of $815 million to $855 million. Operating cash flow of $270 million to $300 million and capital expenditures of $130 million to $160 million. And now, I will turn the call back to Mark Steinkrauss.

Great. Thank you, Bill. Brooke, we can move to our questions and answers, please? Question And Answer

[Operator Instructions]. Your first question comes from Simon Flannery [Morgan Stanley].

Okay. Thank you. Good morning. Just as a point of curiosity, first of all, maybe you could just talk about what happened last week with the delay to the results, and just if there is any anything we need to know about that? More particularly on the wireless outlook for 2008, I think during your comments, you made some comments about Q4 being tough, talked about the rising equipment subsidies, talked about the heavy advertising required by you and seeing that your competitors. We've had some significant pricing actions by some players in the first quarter, the economy's got worse and yet your guidance, your outlook is reasonably constructive. Can you just contrast what really, despite all of the headwinds that we're seeing, what sort of turns things around from the momentum, slowdown that you saw in the fourth quarter, and delivers on the 08 guidance? Thanks.

Hi Simon. It's Ken. I would take the first of the question.

Okay.

And what happened last week was we thought we were close, we had one thing, we had to check and given our philosophy of it's going to be right. We decided to take the time to check something out Friday, didn't have any substantial effect on any of the numbers that you saw. We actually wound up moving something on the balance sheet, about $20 million and that's all it was. But, its one of those cases where we're going to be safe, and we will take our time, and then we will get it done. Get it done the right way.

Okay.

In terms of the kind of business going forward, let me let Steve Campbell talk about that a little bit.

Yes. Simon, I think the first thing that I would say is in response to your question about the headwinds, and how do we think we are going to deliver on this guidance, and what's the turn around. You're right. Early in the quarter, we came out with a release and we had indicated that we've seen some softness in Q4 and frankly that continued into the early part of this year. But, we have seen a nice pickup in business during the month of February. So, some softness there, we still like to see it better, but we have seen an improving trend. The other thing I would say about the guidance is, as always there is a range of outcomes there. There is growth in revenues and I don't want the loose side of the fact that there is growth in operating cash flow in that plan. We think it's a balanced plan though. We think that at the midpoint, the guidance is, in terms of margin, a little above where we're at this year. It has growth, but we think it's a balanced plan. Something that we will continue to look at as things unfold here this year, we are still early in the year that you are right there is some uncertainty, something to be monitored.

Do you see any big impact from the actions by Verizon, Sprint and others?

I'll let Jay. Jay you comment on that.

Jay Ellison is on the call. So, we'll let him take that question.

Yes. Excuse me. Simon, we've also introduced the $99, excuse me, unlimited rate plan in the marketplace. Quite frankly, the way we evaluated, looking at it all, albeit it's only been out there 10 days or so. I think there is a small portion of the customer base that finds that very attractive. I think there is probably some that love the simplification of it, and I think when you look at it across our scope of customers, it's good offering for some of the higher user to some folks that actually wants some simplification in their rate plans. Beyond that, I really don't see it as a major force this year, at least from what we've seen from the current announcements from everybody out there, kind of going to a $99 or $89, unlimited rate plan at this point. As Steve earlier mentioned about 18 months ago introducing a new portfolio, rate plans which are widely successful in the company and we continue to offer those. And we are looking down towards the back half of the year, any tweaking we need to do at our rate plans, and we always are paying very close attention to that. And kind of how we see to roll out of those plans, we respond to those as well, I think within 48 hours.

Great.Thank you.

Your next question comes from David Janazzo [Merrill Lynch].

Good morning. You had mentioned no significant market expansion in 2008, what are the considerations for beyond this year?

Jack Rooney. We obviously are conscious looking at the opportunities that are out there. But right now, we don't see any reason for us to be opening up new markets. We still are concentrating on the chunk that we chewed off over the last couples of years, and we are trying to continue to focus on bringing the cash flows and the operating results for those markets up to the level of our older markets.

Thank you.

Your next question comes from Will Power [Baird].

Great. Thanks. I guess maybe a couple of questions. I guess, I wonder first if you could address, what type of impact think you are seeing from the economy today versus competitive pressures in the marketplace, both perhaps within the wireless business and then may be also within the wireline business? And then what are the principle ways you are trying to measure that?

Again, this is Jack Rooney. It's difficult to measure the economic impact on a long range basis. I mean we've seen a lot of thing happening. Some people are predicting doom and gloom and others are saying things are about as bad as people think they are. The said [ph] has put a maximum stimulus, I've never seen that our reserve reacted strongly, as they have they started that stimulus about five or six months ago, and guess what, that's what generally the impact is felt in five or six months. So, we will see what happens, and we are relatively optimistic that we are going to see a fairly significant recovery in the second half of the year, and that's the way we are playing the cards.

Okay.

This is Bill Megan. Let me comment on the wireline side, and see how the dynamics shape up against what you are seeing. I think one way to think about this is that uncertainly in the market, that is uncertainty about how much the economy will slowdown, what will happen with inflation is clearly a negative as consumers and commercial customers decide how much they're willing to spend on our services. But in our markets are becoming increasingly competitive. So, we will be competing for share of a tightening wallet. On the negative side, you would add pressure on housing in credit. However, there are counter bailing forces that will help balance the economy, and I think it is important to note. For example, you see U.S. exports remaining strong, and with growth in other areas of the world, coupled with the deterioration in the dollar, which were seen dramatic here... dramatically here, U.S. manufacturers could do well in international markets. Similarly, you have rising commodity prices, and they've helped firm income. In many of our markets on the wireline side, they are more rural and the agriculturally based. So on top of that, you would overlay, as Jack said that the positive impact of the $168 billion economic stimulus package, and that's going to help both consumer, commercial segments, especially bonus depreciation in the section 179 release. And some might say there are positive forces that will influence how the economy effect this is well as those negatives, and where the balance ends up. As Jack said, very difficult to predict, but it's not going to be all one way to the downside.

Okay. Thanks, that's helpful. And then I had a question on wireless margins, and I think this was alluded to in the prepared remarks as well, but as we look at the wireless business in 08 versus 07, and I think the guidance suggests that the wireless market was pretty flat year-over-year, and it sounds like that part of that attributed to some of that competitive pressure. How do you think about the leverage that you may be have at some point though the start to raise those margins and may be approach low 30% levels, if not even a mid 30% level at some point? Thanks.

Well, a couple of comments. Certainly, at the midpoints of the guidance, the margin is very much in line with 08, as you look upwards in the range, margins could be stronger. When we think about levers we pull, looking at efficiency across something we do on an ongoing basis. Depending on how the year shapes up, there might be things that we could do in terms of discretionary spent. But, I think it's important to remember that we tried very hard to balance the efficiency with the effectiveness. Our model is about delivering customer satisfaction. So, there is something we wouldn't do. We wouldn't cutback on costs that are incurred to support the subscriber base in the way they become accustomed. And we wouldn't cutback on the thing that are critical to the strategy like the superior network experience. So, it something always subject to review, but we try very hard to strike that balance between effectiveness and efficiency, and then delivering that best in industry customer experience.

Okay, thanks.

[Operator Instructions]. Your next question comes from Kevin Roe [Roe Equity Research].

Thanks you. Good morning. A couple of questions. On prepay, that clearly hasn't been focuses of the company, and I guess, you been losing some prepay customers recently. But, as you well know that's the fast growing segment of the market, what are your plans in 08 and beyond to better address that segment as we get more and more penetrated in this U.S. market? My second question is on EVDO. One of the bright spots in the industry as you well know is selling high speed data cards, are you feeling a greater pressure to broadly deploy EVDO in order to be active in that space? Thanks.

Why don't we have Jay Ellison take the first part of the question and Steve will take the second part.

So your question around the prepaid and what we are doing that area. Your comments about it being a very fast growing segment in the marketplace, is one that we have stayed very close to. And so, we have a couple of things going on in the near term relative to prepay. It's very important to us that we really got our cost structure very much in line with the value of the prepaid customer, and we have been working really on that in the last eighteen months or so, and feel pretty good about where we are getting on that arena. We have a couple of trials planned for very early this year on a couple of activities in the prepaid arena around pricing and royalty and a number of things like that that we'll be deploying for trial basis, and then after we get results rapid deployment across the rest of the enterprise. And then we are in the back half of the year doing some work relative to systemic in our comp system structure way to really align the compensation for our front-line associates in accordance to the prepaid, and we think that will also drive continued growth in that area. So, we are really focusing in those three areas around what we... can we learn and how we can get more loyal prepaid customer and keep what we got longer, and increase some of the revenues from them, attract to your point about the growth segments of some product offerings and then the compensation structure to our sales associates. They are kind of the three focus areas of operation for the first half of the year that we're going to be putting some strong work around, without sacrificing our growth in the postpaid arena.

Yes, I want to emphasize that we are a postpaid company, and that's where our emphasis is and is going to stay. We need to... we don't want to ignore the segment of the business that is the prepaid segment. But at the same time, we don't feel that that is the principle line of business we want to get into.

Let me start, I'll take it then to make a couple of comments about EVDO. I think as we launched service in Milwaukee in late 2006, and since then we have been doing a lot of analysis around our EVDO offering. Couple of the things that we've been thinking about as we want to be sure that EVDO-based services are services that customers really value and want, and we have used the Milwaukee experience to be sure that we can deliver those services, again with the high quality experience that our customers have come to expect. Based on the analysis, we think it makes sense to expand our EVDO deployments into other selected markets, and we have preliminary plans for that, and we'll be doing so later this year.

And lastly, your LA partnership, it's a material part of your valuation, but not a lot of details, not a lot of info on how much EBITDA is generated there. How can you guys highlight that that valuable asset better and are there any plans to potentially monetize that business?

This is Ken Meyers. First of all, I think if you look in our filings, you will see quite a substantial amount of information on that. But more importantly, if you look at the financials, you'll see cash coming out of those, and it's not an EBITDA, it's a free cash flow to rather substantial amount of money that we reported. And we've talked about monetizing is one option, but quite frankly, there aren't a lot of vehicles that are very efficient in doing that, giving the extraordinary low tax basis that company has in it. The cash flow distributions we get are exactly proportional to our ownership. There's no management fee or anything else of the top. So, we are reaping the rewards today of that cash flow stream, and we have used that both to repurchase shares at U.S. Cellular as well as to reinvest into other parts of our business. So, we aren't in any hurry to change or get rid of that cash flow stream.

Ken, what was the EBITDA for business in 07?

I don't have the K in front of me, but I think that you will see very substantial information on that in them.

In fact there is... just to clarify there is... in fact there is full financial statements on the 08 partnership in the 10-K filing, and as Ken said in our MD&A there is quite bit of information about both our share earnings and our share of cash distributions with the partnerships.

It might be helpful to break that out when you do your quarterly release for the Street, just so the Street gets head over the head that they actually can see that?

Well, Kevin. It's Mark. There is an appendix to the K, so we have to scroll through the whole thing to make sure you see it. And as you know, we do call it out in every investor presentation we make. But, your point is well taken, and we'll see if we can give it a little bit more highlight in the future.

Thanks.

Our share earnings for the quarter was $70 million.

Okay.

Brooke, we're ready for the next question.

Your next question comes from the line of Stephen Mead [Anchor Capital Advisors].

Yes. Hi. Just looking at the CapEx number in 2008, can you just talk about in just general terms, what you're spending money on relative to 2007, as far as infrastructure or upgrades from technology? The other thing is that you mentioned that you're not entering any new markets. Is any of your CapEx spend done in sort of anticipation or preparation for the new markets?

So, looking into 08 in terms of where the spending is going predominantly, it goes in to the network as it did in 2007. There is also capital, as there is every year for new retail store builds and re-models. No significant shifts in terms of proportions. Network is the predominant part, and as I said there is some for stores. The other thing in 2008 I mentioned a couple of minutes ago that we have some plans related to EVDO deployment, so we do have a modest amount of spending in the plan related to EVDO deployments.

But there are no plans, there are no spending specifically earmarked for preparation for further expansion.

Alright. And a follow up, just on the revenue progression in terms of ARPU progression. Guidance for 2008, what are you seeing for the different components of service revenue, as far as the base sort of voice business versus data, versus the pricing impacts and stuffs?

Well, typically we don't and we won't provide guidance on full growth. I think it's safe to say that we would expect an increase in data revenues again in 2008, although given the kind of growth we have this year at 70%, I don't think we would expect that to continue.

And what do you think in terms of data and the mix of phones that you're selling and then also the handset subsidy side of the equation, as you go into 2008?

I think its similar trend, as we saw in 2007. We've seen a move up in terms of to the higher end of handsets, and as we've said today and then in our other calls, the results of that, those higher end handsets drive higher revenue, but they also come with a cost, in the form of a higher subsidy. We don't expect that trend to be significantly different going forward.

I mean but how that affects your thinking in terms of how much money you want to put into the subsidy side versus the other part of the equation in terms of retention of customers and the churn issues and sort of creating, as you look at sort of what value you are creating in term of new customers?

Look you're asking a very complex question, and I think we answered that question earlier. A primary concern of this business is retention of our customers, and we are not going to do any thing that's going to influence our customers to find greener pastures. So, we will be competitive in the handset subsidy market and then the technology. It's deployed so that our customers have a full service offering, and we don't see any reason to change that. I mean our cash flow is arising rapidly. Our profits are doing well. This has been a very successful strategy for us and we see no reason to change that.

Well, that's fine. Thanks.

Okay.

Your next question comes from Robert Sisseton [ph].

Good morning. You're ... Ken your Standard and Poor's rating appears meaningfully below what your balance sheet and performance suggests. And I think when they lowered you it mainly due to accounting issues, which seems to be cleared up. Could you talk about any update that you've had with them? They have indicated that you probably would move up at least two notches. And has anything changed with the stock lagging? Do you still have a same commitment to investment grade ratings today that you had a year ago?

Good morning, Bob. I didn't hear the second part of your question. Could you repeat that before I answer?

Sure, I hit with the stock lagging, have you made any changes to your commitment to investment grade ratings?

Okay. So, I'll start with the second part first of question. No we haven't. It is still a core part of our platform, of our whole strategic platform is to maintain the investment grade rating of the company. And I think today's credit markets are a great example of why we think that is absolutely in imperative and that is, we aren't smart enough to know what tomorrow is going to bring. We want is much of a financial flexibilities as we can have. In terms of the agencies, I haven't spoken with them, since we have announced our earnings release, typical schedule is I wind up taking to them over the next couple of days. I agree with you that the financial results of the company continue to be strong. The balance sheet is almost pristine [ph], and the company has made substantial progress on accounting issue. So, I am hopeful to see some action there but I don't have any news to share at this time.

Thank you so much.

At this time, there are no further questions. Do you have any closing remark?

No. Brooke, if there are no more questions we are ready to finish up the call.

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