FINAL TRANSCRIPT




     Conference Call Transcript
     AT - Q2 2005 Alltel Corp. Earnings Conference Call
     Event Da...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call



CORPORATE PARTICIPANTS
Rob...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call



materially, many of which ...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call




As most of you know, the ...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call



quality customer growth an...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call



Last quarter we mentioned ...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call




Kevin Beebe - Alltel Corp...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call



3.50 range on EPS. We have...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call



Your next question comes f...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call



the indicative prices for ...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call




Scott Ford - Alltel Corp....
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call




Kevin Beebe - Alltel Corp...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call



 The -- I think on the gui...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call




SO WE STARTED THE PROCESS...
FINAL TRANSCRIPT
 Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call




Donna Jaegers - Janco Par...
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  1. 1. FINAL TRANSCRIPT Conference Call Transcript AT - Q2 2005 Alltel Corp. Earnings Conference Call Event Date/Time: Aug. 04. 2005 / 8:30AM ET Event Duration: N/A Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 1 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  2. 2. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call CORPORATE PARTICIPANTS Rob Clancy Alltel Corp. - VP, IR Scott Ford Alltel Corp. - President, CEO Kevin Beebe Alltel Corp. - Group President, Operations Jeff Gardner Alltel Corp. - CFO, EVP CONFERENCE CALL PARTICIPANTS Frank Louthan Raymond James - Analyst Thomas J. Lee J.P. Morgan - Analyst Tom Seitz Lehman Brothers - Analyst Collette Fleming UBS - Analyst David Janazzo Merrill Lynch - Analyst Mike McCormack Bear Stearns - Analyst Viktor Shvets Deutsche Bank - Analyst Donna Jaegers Janco Partners - Analyst PRESENTATION Operator Good morning. My name is Aileen and I will be your conference facilitator today. At this time, I would like to welcome everyone to the second quarter 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 period. [OPERATOR INSTRUCTIONS] Mr. Clancy, you may begin, sir. Rob Clancy - Alltel Corp. - VP, IR Thank you, Aileen, and good morning, everyone. Welcome to Alltel's second quarter 2005 conference call. My name Rob Clancy and I lead the Investor Relations department for Alltel Corporation. Thank you for participating in a discussion of our second quarter results this morning. Today's conference call was preceded by our second quarter 2005 earning release. This press release has been distributed on the newswires and is available from our website at www.alltel.com. Today's conference call should be considered together with our press release and related financial information. Today's discussion includes statements about expected future events and future financial results that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to uncertainties that could cause actual future events or results to differ materially from those expressed in such statements. Other factors that could cause actual results of Alltel to differ Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 2 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  3. 3. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call materially, many of which are beyond the control of Alltel, include, but are not limited to the items listed in the Safe Harbor statement contained in our second quarter 2005 earnings press release. Additionally, today's discussion will include certain non-GAAP financial measures. Again, we refer you to the Investor Relations section of our website where we have posted our earnings release and supplemental materials, which contain information regarding these non-GAAP financial measures. Including a reconciliation of such measure to the most directly comparable GAAP measure. Note that a live webcast is available on our website. To access the call, go to IR section and click on the "live webcast" link. This section also provides comprehensive I have financial information about the Company, electronic mail alerts, Company presentations and corporate governance information. Participating in our earnings discussion this morning are Scott Ford, Alltel President and Chief Executive Officer; Kevin Beebe, Alltel Group President, Operations; and Jeff Gardner, Alltel Executive Vice President and Chief Financial Officer. At the end of the call, we will take a few questions. WITH THAT, HERE IS SCOTT FORD. Scott Ford - Alltel Corp. - President, CEO Thank you, Rob. Good morning, everybody. Glad you can join us for the call today. We have had a very busy second quarter and we've got a lot to talk about this morning. I will start with an overview of our business results for the quarter, then discuss the Western Wireless merger, and conclude with an update on three important initiatives we currently have underway. The required divestitures of certain Western Wireless domestic properties, the status of Western Wireless' international business, and our latest thinking on the long-term prospects of the U.S. wireless and wireline industries and how that drives our thinking about structure. Kevin will walk you through the operational highlights of the quarter, as well as update you on our transition plans for our recently-acquired markets and for Western Wireless, and then Jeff is going to take you through the financial overview. Now our year-over-year results are affected by a number of smaller transactions completed over the past several months. Recall that in the fourth quarter of '04 we acquired properties from U.S. Cellular and MobileTel in Georgia, Ohio, Florida and Louisiana. In the first quarter of '05, we acquired properties from Public Service Cellular in Georgia, and in the second quarter, we a acquired properties from Cingular in Oklahoma, Kentucky, Mississippi, Kansas and Connecticut. Collectively, these markets represent just under 4% of our wireless customer base, and they are each in various stages of the network, handset, branding and billing system conversion process. Consistent with past acquisitions that require technology change, we have a track record of improving the operational and financial performance after we make the necessary investments in the business. The newly acquired properties I just mentioned are no different, and while we have much work ahead of us we are encouraged with the opportunities these new markets present. In discussing our results this morning, we will give you additional insight into our business by making reference to our Heritage markets, which will exclude the effect of these acquisitions. Let me start with our GAAP results. We are pleased to report that for the second quarter of '05, Alltel achieved $1.27 of fully-diluted earnings per share on a GAAP basis. Which includes a gain from the sale of our Fidelity National stock and a gain resulting from the exchange of wireless partnership interest with Cingular, which were part of the recent acquisitions I just mentioned. These gains were partially offset by prepayment charges on a $450 million bond issue that we retired early. Excluding these items, Alltel achieved fully-diluted earnings per share of $0.90 from current businesses, an increase of 6% year-over-year. This quarter, consolidated revenues and operating income grew 11% and 3% respectively, led by strong performance in our wireless business, which had revenue growth of 16% year-over-year, and segment income growth of 17%. In our Heritage wireless markets, revenue and operating income grew 11% and 14% respectively. In our wireline business, revenue declined 2% year-over-year and segment income declined 8%. The wireline group continues to produce industry-leading margin, cash cost per customer and return on capital numbers. But on this largely fixed cost business, any customer decline, however slight, is margin effecting. Our Heritage business has performed well for the first half of the year. We have been able expand our wireless operations while continuing to finance our business conservatively. In fact, at the end of the quarter, our net debt to operating income before depreciation and amortization or OBITDA, as it's pronounced around here, was less than 1 times at 0.9 times, and net debt to total capital was down to only 26%. Even after the addition of Western Wireless, assuming the expected disposition of all international assets, which I will talk now a moment, our pro forma credit metrics are very healthy, with net debt to OBITDA of 1.2 times and net debt to total cap of 27%. Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 3 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  4. 4. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call As most of you know, the Western Wireless merger became effective August 1st. On behalf of everyone here at Alltel, let me welcome our newest colleagues from Western Wireless. We are excited to have you on the team, grateful for the hard work you have put into building such a fine business, and look forward to a great future together. I know that the transition issues over the next couple of months will be bumpy, they always are, but stay with us, they always sort themselves out in time. Both the DOJ and SEC approvals of the transaction were conditioned upon the divestiture of 16 markets in Nebraska, Kansas and Arkansas. The DOJ has appointed a trustee to manage these markets, and with the help of Western Wireless we have established a separate team to manage and support these markets. We have begun discussions with several parties interested in purchasing these markets and currently anticipate that we will be in compliance with the order of disposal within the four-month allotted time frame. Since announcing our intent to merge with Western Wireless in January, the industry structure abroad has changed rapidly, with consolidation currently taking place in several European countries. Accordingly, as the operations in Ireland and Austria have seen significant growth over the past year and the international team at Western has delivered great financial results, these properties have drawn the interest from a number of potential interested acquirers. Early last week we announced a definitive agreement sell the Irish business, Meteor to Eircom for approximately the $500 million U.S. We expect this transaction to close in the fourth quarter of this year. In addition, several bidders have expressed interest in the Austrian business, Telering, and at this time a sales process is underway. Giving the pending sale of Meteor and the process underway at Telering, the two primary assets in the international portfolio, we have retained advisors to explore the disposition of the remaining international assets. We currently expect this process to conclude by year end. Now let me spend a few moments updating you on the strategic review process related to our wireline business. With the Western Wireless merger completed, wireless now represents approximately 70% of the total revenue, customers and earnings stream at Alltel. Transforming this business mix has been an important element of our strategy and resulting growth over the past several years. Our wireline team does a fantastic job of producing industry-leading results and that business continues to generate a sizeable amount of equity free cash flow. As we look over the next five to ten years, however, it is clear to us that this telecom segment will continue to face growth challenges, but produce significant free cash flow along the way. On the other hand, the wireless industry with its robust competitive environment, continues to replace wireline voice minutes and we believe it is capable of meaningful participation in the growth of data traffic over time. Our strategic review is, therefore, focused on determining how we can best position both businesses for long-term shareholder value in light of the operational, technological, regulatory and competitive trends in each business. To date, we have reviewed various capital structures and strategic alternatives that could be value enhancing to our shareholders. We are now hiring bankers to further explore certain specific options which appear more likely to deliver on this goal. Naturally we have had several discussions with our Board on this topic and expect to spend considerable time on this subject during the remainer of this year. We will keep the investment community apprised of our progress as appropriate, although at this time it must be noted it is not a foregone conclusion that any alternative in the wireline business will actual will be pursued. In summary, we are very pleased with the way our business -- our businesses have performed in the first half of the year. We are excited about the prospects for the remainder of '05 and beyond. The Alltel team has delivered a solid set of results within our Heritage operation, and is making great progress on the integration of the recently acquired properties and on the Western Wireless merger. We believe our business mix positions us for continued growth, and this, coupled with our very solid balance sheet, affords us significant flexibility to continue to increase shareholder value over time. WITH THAT, LET ME TURN IT OVER TO KEVIN WHO WILL TAKE YOU THROUGH THE OPERATIONAL PERFORMANCE OF THE QUARTER, AND I AM SURE ADD LIGHT ON OTHER THINGS ALONG THE WAY. THANK. Kevin Beebe - Alltel Corp. - Group President, Operations Thank you, Scott, and good morning, everyone. First of all, I would like to echo Scott's welcome to everyone at Western Wireless, as well as the former AT&T Wireless employees. We are glad to have all of you on our team. Let me first review some key wireless results. This quarter, average revenue per customer was $50.55. That's an increase, that's an increase of 6% year-over-year. And the highest ARPU in five years. Retail ARPU increased 5% to $46.42. These increases resulted from our continued focus on Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 4 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  5. 5. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call quality customer growth and improvements in data revenue and, to a lesser extent, ETC revenue growth. Wireless gross customer additions were 593,000 for the quarter. That's down year-over- year. Post pay churn was 1.58%. And total churn was 1.99%, both were flat year-over-year, which we are very pleased with given the increase in contract expirations. Next -- excuse me, net customer additions for the quarter were 54,000. Although, post-pay net additions were well over 150% of the overall net additions. In our Heritage markets, we added 81,000 customers, which included a net loss of 24,000 prepaid customers. In our acquired markets, we lost 27,000 customers, mostly in the markets acquired during the second quarter. This decline was expected, and we will likely face some similar challenges this quarter as we launch our brand and we deploy CDMA networks in those markets. By the end of July, we had launched CDMA networks and phones in virtually all of these newly acquired markets. We now have Alltel national plans in the marketplace and we look to improve our competitive position. This quarter wireless data revenue per customer increased to roughly $2, or 4% of total ARPU. We also began selling a BlackBerry device through our business channel. And by the end of the quarter we added this product to our retail stores and, more importantly, began offering national coverage in conjunction with the BlackBerry device through a 1X roaming agreement with Verizon. In fact, this agreement enables 1X- related services to work across the same footprint as our national voice plans. Also, we further expanded the 1X data footprint in our markets to cover -- to now cover about 70% of our pops and we are on track to cover 95 to 100% of our pops by the end of the year. Finally, we have EVDO service available in five markets and we expect to be operational in ten to 12 markets by the end of the year. Within the Western Wireless markets, it's obviously still too early to assess our performance, but I can share a few thoughts about our transition plans. Earlier this week, we announced that we would employ over 600 people in the Seattle area by maintaining an office in Bellevue, Washington, and a Call Center in Issaquah, Washington. We will also maintain the existing Call Center in Manhattan, Kansas. We plan to launch the Alltel brand and bring our national plans to these markets by year end, followed by a migration to Alltel's support systems and processes. We have a lot of work to in the coming months, which we believe will better position all of these markets competitively. Now some highlights from our wireline business. This quarter we added 36,000 net broadband customers, bringing our broadband customer base to 319,000. Our wireline teams have done an exceptional job growing this customer base as evidenced by our overall penetration rates and penetration growth, both of which are among the best in the industry. Feature revenue per eligible line increased 6%, and couple with our broadband revenue growth, led to average revenue per wireline customer of $66.83. That's an increase of 1% year-over-year. We did lose 30,000 access lines this quarter, the result of continued wireless and broadband substitution. That brings our year-over-year loss to 3.7%. Our access line losses remain concentrated in our larger market. In terms of the competitive landscape we now have Voice over IP competition in three markets. As we mentioned last quarter, we have entered into an agreement to offer DISH Network TV service as a reseller, and are now conducting internal trials in preparation for a commercial launch later this year. We look for this additional service offering to improve our competitiveness in markets where we see voice and video competition. IN SUMMARY, AT THE END OF A VERY BUSY QUARTER, I WOULD LIKE TO THANK THE ENTIRE ALLTEL TEAM WHO CONTINUES TO PERFORM EXCEPTIONALLY FOR OUR CUSTOMERS AND FOR OUR SHAREHOLDERS. WITH THAT I WILL NOW TURN THE CALL OVER TO JEFF GARDNER, OUR CHIEF FINANCIAL OFFICER. JEFFREY? Jeff Gardner - Alltel Corp. - CFO, EVP Thank you, Kevin, and good morning, everyone. For the quarter, our wireless business generated $1.37 billion of service revenue, an increase of 16% year-over-year. In our Heritage markets, revenue grew 11% year-over- year. Retail service revenue grew 15% year-over-year to $1.26 billion, driven primarily by our continued focus on quality customers and data revenue growth. Wholesale revenue grew 22% year-over-year, with wholesale revenue growth of 10% in our Heritage market. This quarter, we generated $307 million of wireless segment income, an increase of 17% year-over-year; driven primarily by the revenue growth I just mentioned, solid expense management. and to some extent, the result of higher growth additions in the second quarter of 2004. In our Heritage market, segment income grew 14% year-over-year. Wireless cash cost per customer, excluding selling and marketing expenses, were $23.64, an increase of 9% year-over-year, driven by higher retention expenses, additional data expenses, and a 21% increase in retail minutes of use per customer, which are now at 593. Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 5 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  6. 6. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call Last quarter we mentioned that we were expecting roughly $0.02 to $0.03 of additional expense related to our rebranding campaign. In the quarter we spent approximately $9 million, or less than $0.02 per share, and we expect a similar spend in the third quarter. Turning now to our wireline business. We generated $595 million of revenue, a decrease of 2% year-over-year. Segment income for the quarter was $215 million; which is down 8% year-over-year and primarily the result of the revenue decline I just mentioned, particularly network access revenue. Nevertheless, we continued to maintain very good margins in this business. Communication support services produced $261 million in revenue and $12 million in segment income. This quarter, capital expenditures totaled $372 million, and we generated $260 million of equity free cash flow. We ended the quarter with a strong balance sheet and solid credit metrics. Let me elaborate on a few specifics regarding the balance sheet in the second quarter. First, we sold our Fidelity National stock in early April, which had a basis of 275 million we received pretax proceeds of roughly 350 million. Second, we retired a $450 million bond that was scheduled to mature in 2006, and incurred a make hold charge of $15 million. Third, in mid-May we issued approximately 24.5 million shares related to our equity unit. And at the same time, received roughly $1.4 billion in cash proceeds. These items are all reflected in the balance sheet as of June 30th, 2005. As we mentioned during our first quarter earnings call, it was our plan to provide additional financial expectations for both the newly-acquired market and Western Wireless. With respect to the newly-acquired market, we have plans to migrate the entire base to CDMA handsets in the second half of the year. Because the GSM network in these markets will be turned off at year end. Given this acceleration we will treat the handset subsidies as integration expenses in the next two quarters rather than as expenses in current business results. We expect to spend roughly $30 million on this activity. Let me now discuss a few specifics regarding Western Wireless. The Western Wireless merger became effective August 1st and resulted in our issuing approximately 54 million shares, paying over $930 million in cash, and assuming roughly $2 billion in net debt. In terms of synergies, we continue to believe that we should realize operating synergies of $50 to $60 million in 2006, $70 to $80 million in 2007, and $80 to $90 million in 2008. In addition to the operating synergies, given the strength of our balance sheet, we have taken steps to reduce interest expense. Immediately after closing, we paid off $1.3 billion of Western Wireless' bank debt with cash on hand and commercial payment borrowings. And we launched a tender and consent solicitation for the $600 million, 9.25% senior notes. So we have made strides in improving our already strong balance sheet. From a capital expenditure perspective, recall that in January we provided guidance in the range of 1.3 billion, to 1.4 billion for 2005. Given the investments needed to deploy CDMA technology in the newly-acquired markets, and the ongoing capital expenditures within the Western Wireless market, we now expect capital expenditures in the range of 1.4 to 1.5 billion. Also, we expect these transactions to dilute earnings by up to $0.15 per share for the remainder of 2005. But given the strong performance of our Heritage business, we still expect to be within the original 2005 guidance range for fully-diluted earnings per share from current businesses of $3.30, to $3.50. This includes classifying the Western Wireless international business in discontinued operations. With that, we will now take a few of your questions. Operator, please review the instructions and open the call to questions. QUESTION AND ANSWER Operator Thank you. [OPERATOR INSTRUCTIONS] Your first question comes from Frank Louthan with Raymond James. Frank Louthan - Raymond James - Analyst Good morning. Just a couple of questions on adds, what are you seeing from a competitive standpoint and were you having to increase some subsidies on the handsets? And then on EVDO, can you give us an update on exactly which markets you are in and how closely that's tracking to expectations? And lastly, on your DSL, some nice adds there, what are your plans for converting your dial-up customers and what is your dial-up base currently? Thanks. Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 6 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  7. 7. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call Kevin Beebe - Alltel Corp. - Group President, Operations Hey, Frank, it's Kevin. I will take a shot at all three of those. On the net add side, from a pricing perspective during Q2, there was, first of all we were very pleased with our post-pay adds. If you do the math, as I know you all do that very well, we did about 100,000 post-pay adds in our Heritage business. We lost 24,000 prepay customers. So once again we were not competitive in the prepay business in our Heritage markets at least. And as we've stated before, we're working hard to change our cost structure around the way we offer our prepay service. We are making good progress there, although we are not at a point that we are ready to change our pricing significantly in that space. So we were pleased on a post-pay side and felt good about that. Although there were some competitive flare ups through the quarter, some of the larger carriers made some price moves as the quarter ended and beginning the third quarter that we thought were good. And we will continue to monitor our competitiveness in the post-pay side. In terms of DO markets, right now we are up in the Cleveland area, we are up in one market in Michigan, we are up in Phoenix, we're up in the Tampa area. If you add all of those up, Cleveland, Akron, Canton, Pinellas, Tampa and then Phoenix are the ones and we will add more as the year goes on, get that to about 12. ON THE DSL ADD SIDE, THAT'S A GREAT QUESTION ON THE DIAL-UP. IN FACT, THE ONLY PLACE WE'VE BEEN MORE AGGRESSIVE WITH OUR PRICING HAS BEEN TO ATTRACT THOSE DIAL-UP CUSTOMERS TO MOVE, OR TO ATTEMPT AT LEAST, TO ATTRACT DIAL-UP CUSTOMERS TO MOVE TO BROADBAND. WE'VE BEEN VERY SUCCESSFUL WITH THAT. OUR TEAM HAS DONE A GREAT JOB OF REALLY LESS OF A SHOTGUN APPROACH AND MORE OF A RIVAL-SHOT APPROACH IN TERMS OF THE COMPETITIVENESS OF OUR PRICING. WE HAVEN'T DISCOUNTED OUR SERVICES TO THE DEGREE THAT SOME PARTICIPANTS IN THE INDUSTRY HAVE. SO I FEEL REALLY GOOD ABOUT THE GAIN, IN ADDITION, I FEEL REALLY GOOD ABOUT THE PRICE THAT WE'VE BEEN ABLE TO MAINTAIN GIVEN THE GAINS. Jeff Gardner - Alltel Corp. - CFO, EVP And, Frank, this is Jeff real quick. Kevin made this point, but I think it's worth emphasizing. When you look at our net gains for the quarter, I think what really stands out is the focus that our sales force maintained on quality, driving very high recurring revenue streams, which drove our topline growth to among the best in the industry, and we continue to make good progress with the sale of our data features. Frank Louthan - Raymond James - Analyst Great. Thank you. Operator Your next question comes from Thomas J. Lee with J.P. Morgan. Thomas J. Lee - J.P. Morgan - Analyst Hi, good morning. And just do want to congratulate you guys on an extremely high quality quarter. But I did want to get two clarifications. One, I heard that the information you guys gave with regard to the Call Center that you plan to keep up in Washington, but what would help me sort of in terms of thinking about the synergies, could you give us an idea of what you are not keeping out in the Northwest area? In other words, what kind of operational presence are you eliminating and just a general idea of possibly the amount of headcount involved? And then I did want to get a clarification on just the GSM. I think what I heard was that because the GSM networks are going to be decommissioned in some markets, that's going to lead to the integration charge of 30 million. Does that mean that you are no longer going to support any GSM roaming capabilities in those markets also, and if you could just clarify that? Sorry, I may have misheard. Kevin Beebe - Alltel Corp. - Group President, Operations Hey, Tommy, this is Kevin. On the operational change, first of all any of the changes that we are making operationally are in the guidance that Jeff talked about, I think that's important relative to the synergies and where we think we will end the year overall. Continuing with the 3.30 to Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 7 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  8. 8. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call 3.50 range on EPS. We have informed about 140 people in the Bellevue area that their jobs will go away. They are mostly administrative at the corporate offices of Western Wireless. At this stage, we have no plans to announce any further reductions in the Seattle area. We are working through field force changes right now. We are in the midst of all that transitional planning. The Call Center is the one that Western had in Issaquah, we will keep that and we'll keep the one in Manhattan. But, so those -- we are fully aware of the fact that we have those synergy targets, we've got to reach them, and we are pleased with the progress we are making, and we are on plan, is my point there. ON THE GSM FRONT, THE -- WHAT JEFF REFERENCED WAS THE CHANGES MADE PRIMARILY IN TWO -- AROUND MARKETS THAT WE ACQUIRED AROUND TWO OF THE ACQUISITIONS, ONE WAS WITH, THE CINGULAR, THE EX-AWE MARKETS, AND AT THE END OF THIS YEAR, THOSE GSM NETWORKS WILL BE TURNED OFF BECAUSE OF THE TRANSITION SERVICES AGREEMENT WE HAVE WITH CINGULAR REALLY EXPIRES AT THE END OF THIS YEAR, SO WE NEED TO MIGRATE THOSE CUSTOMERS TO CDMA IN THE CINGULAR MARKETS. Scott Ford - Alltel Corp. - President, CEO And the other two GSM customers -- players are there so there's roaming traffic. Kevin Beebe - Alltel Corp. - Group President, Operations The GSM roaming traffic would go away anyway because, as Scott just mentioned, especially in Oklahoma City, Cingular is there, I mean they are overlap markets, right? The other place is in the public service company markets in western Georgia and eastern Alabama, and we are in the process of moving those customers off of GSM network. We've turned on our CDMA network and are migrating them to CDMA. Thomas J. Lee - J.P. Morgan - Analyst This one, just to clarify, those are not references to any extent to -- Kevin Beebe - Alltel Corp. - Group President, Operations Western. Thomas J. Lee - J.P. Morgan - Analyst -- any plans to decommission anything in Western's --? Kevin Beebe - Alltel Corp. - Group President, Operations No, in fact, we are still taking a close look at whether or not we should expand GSM roaming in some other Western markets and maybe even some of the existing Alltel markets. Totally separate from that are the changes we are making in the PSE and the ex-AWE market. Thomas J. Lee - J.P. Morgan - Analyst Thank you, guys. Kevin Beebe - Alltel Corp. - Group President, Operations You bet, Tom. Operator Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 8 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  9. 9. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call Your next question comes from Tom Seitz with Lehman Brothers. Tom Seitz - Lehman Brothers - Analyst Good morning. Just a quick question on gross adds. Was a little bit less than what we were looking for in our model. Was it a function of basically not advertising at all in April pre the rebranding campaign? Are you holding dry powder because you share some medium markets with the new Western territories? Can you just expand on that a bit, please? Kevin Beebe - Alltel Corp. - Group President, Operations Sure, Tom, this is Kevin. It was really the result of less than expected prepay gross adds. We were pretty pleased with our post-paid adds. They were within the range that we thought they would be. But really the prepay on the gross and on the net side was not what we expected, and again, has to do with, I think the competitiveness of some others in the marketplace right now and we've just chose to wait that out until we can realign the way we run that part of the business. WE DID DO REBRANDING DURING THE QUARTER.WE CERTAINLY FOCUSED MORE ADVERTISING ON THAT. I THINK THAT'S THE RIGHT THING TO DO LONG-TERM. YOU -- WE REENTERED THE MARKET WITH SOME PROMOTIONAL MESSAGING THIS WILL SEE US QUARTER AND WE WILL CONTINUE THAT THROUGHOUT. Jeff Gardner - Alltel Corp. - CFO, EVP Just to follow up on that, Tom, we did spend more on advertising year-over-year this year, and as Kevin said, it was really focused on the brand which we believe is going to help us in the long run as opposed to focusing it more on specific promotional offers. Tom Seitz - Lehman Brothers - Analyst Got you. Thank you very much. Operator Your next question comes from Collette Fleming with UBS. Collette Fleming - UBS - Analyst Yes, I was just hoping you could go over the taxes at Western Wireless in terms of with the divestitures of the international, if there will be any taxes or use of the NOLs and what the NOLs are expected to be after that, so what would be proceeds on an after-tax basis? Jeff Gardner - Alltel Corp. - CFO, EVP Welcome back, Collette. Collette Fleming - UBS - Analyst Thanks. Jeff Gardner - Alltel Corp. - CFO, EVP Good to hear from you. It's very difficult for us to get into specifics on that because many of these things are in flight. What I will say is that, as we look at these deals, net proceeds is really important, and to date the -- from the talk and from what we've seen in the marketplace we think that Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 9 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  10. 10. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call the indicative prices for these properties look very attractive even on an after-tax basis, which is what we are really focused on. But I can't talk about specifics in any one of the properties. Collette Fleming - UBS - Analyst Okay. Thanks. Scott Ford - Alltel Corp. - President, CEO We understand the question. We will clarify it for you on the back end of everything being done so you can see it. Operator Your next question comes from David Janazzo with Merrill Lynch. David Janazzo - Merrill Lynch - Analyst Good morning. On your wireless ETC side of it, what was the number for revenues during the quarter? And then given the exposure to it at Alltel and Western and the Federal State Joint Board response earlier in the year, what's your outlook for wireless ETC revenues the rest of this year and into next year? Jeff Gardner - Alltel Corp. - CFO, EVP Well, I think in terms of our guidance last quarter, I think we said it would be in the $25 million range. We did slightly better than that in the quarter, David. In terms of our outlook, I don't think that has changed. We continue to work real hard with the states that we operate in, take real seriously the conditions to which we agree to with regard to these ETC funds we are receiving. And we will stay as focused as we can, as maximizing the revenue flow from ETC. Scott Ford - Alltel Corp. - President, CEO And, David this is Scott, we were also very pleased to be able to add the leadership team out in Seattle that ran Western Wireless' ETC efforts. They have joined us and those two -- or two organizations are finding best practice right now on that front. David Janazzo - Merrill Lynch - Analyst Thank you. Operator Your next question comes from Mike McCormack from Bear Stearns. Mike McCormack - Bear Stearns - Analyst Good morning. Thanks, guys. Just first question, could you give us a sense on the wireline? You've discussed the possibility at least of a spin, both in the past and today. Maybe what the gating factors for that idea are? And obviously, a little bit early to discuss it, but maybe a sense of maybe leverage and dividend on that potential spin? Secondly, maybe just a comment on your retention efforts in the acquired properties, how we should look at sort of marketing spend in handset subsidies? And then lastly, just on your base of customers plus your net adds, can you give us a sense of what percentage are nationwide calling plans? Thanks, guys. Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 10 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  11. 11. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call Scott Ford - Alltel Corp. - President, CEO I will take the first one, Kevin will take the other two. The way we are approaching the wireline process is, to some degree, driven by not only valuations, but what we think is the appropriate capital structure long-term. There are several ideas in the marketplace. If you look over the last 12 months, there have been several kind of new wrinkles in the capital structure of wireline businesses. We are not exactly sure that we would be as aggressive as some in the marketplace have been on the leverage side and on the payout side. The rumors in the marketplace, if you will ,about spread and where they are likely to come out are meaningfully lower an a leveraged basis than some of the smaller independents. That kind of structure seems to make more sense to us because the one thing that we cannot do is have a business that has so much leverage and is committed to a payout that can't be maintained over the very long term. Otherwise, we would view that as broken faith between management team, the employee group, the customers we serve, the shareholders that we are trying to deliver value to. SO IF YOU LOOK AT THE REST OF OUR FINANCIAL LEVERAGE PROFILE, WE ARE NORMALLY GOING TO COME OUT LESS AGGRESSIVE BECAUSE WE WANT TO MAKE SURE THAT WHATEVER WE DO IS SUSTAINABLE INDEFINITELY AS OPPOSED TO FOR A FEW YEARS. HOW THAT GETS REFLECTED IN THE VALUES, HOW THAT GETS REFLECTED IN THE MULTIPLES, THOSE ARE ALL ISSUES THAT MAY ACTUALLY, ON ONE HAND, ENCOURAGE US TO MOVE FORWARD, AND ON THE OTHER HAND, MAY CAUSE US TO WAIT A COUPLE OF YEARS TO SEE HOW ALL THIS PLACE OUT. THAT'S THE PROCESS THAT WE ARE HEADING INTO NOW OVER THE NEXT SIX MONTHS. Kevin Beebe - Alltel Corp. - Group President, Operations Hey, Mike, it's Kevin. Let me take the last two questions. I will go to the last one first, because I think that's the -- I can answer that real quickly, it's 40 to 45% of our base are on nationwide plans. That's been a real consistent number for us. We've continued to drive our promotional message and the best phone pricing as an example on a two-year contract with a national plan and that has worked very well. Again, given the post-pay adds, net adds we had in the quarter we are real pleased with the way we've come out there. On the retention front, in our acquired markets, as Jeff mentioned, in the markets, mostly the markets that we are acquired from Cingular, between now and the end of the year we will spend $30 million to move customers off of GSM phones on to CDMA phones. That's getting them the phones, that's incenting them with our pricing from a service plan perspective, I -- two things I would like to say there; one is, if any of the customers in the acquired X Cingular markets are listening this morning, I would like to thank you for your patience. We've had long lines, that's good news. Folks have been very patient in working with us on the change. It does take time to port customers from one -- from the Cingular or AWE systems to us and it's been going very well, we are very much on plan. Secondly, I would like to thank the employees working through that right now because there's been some long days involved. We will get them migrated as soon as possible on to more attractive plans. A QUICK TANGENT, ONE OF THE THINGS WE'RE FINDING I THINK THAT WILL BE VERY ATTRACTIVE TO CUSTOMERS IN THOSE MARKETS, WE ARE REALLY ONE OF THE FEW IN THIS BUSINESS TODAY THAT CAN DELIVER A VOICE FOOTPRINT THAT MATCHES A HIGH-SPEED DATA FOOTPRINT NATIONWIDE. I MENTIONED THAT EARLIER IN MY COMMENTS. WE THINK THAT IS SIGNIFICANT COMPETITIVELY, ANDI KNOW IT'S UP TO US TO DRIVE THAT THROUGH OUR NUMBERS, BUT I'M VERY EXCITED ABOUT THE WAY WE CAN OFFER BLACKBERRY DEVICES AND ANY OTHER 1X-RELATED SERVICE RIGHT NOW IN A WAY THAT REALLY REMOVES THE COMPLEXITY OF EXPLAINING FOOTPRINT DIFFERENCES BETWEEN VOICE CALLING PLANS AND DATA CALLING PLANS. WE DON'T HAVE TO DO THAT. GREAT WORK BY OUR TEAM AND OUR 1X ROAMING PARTNER HAS DONE A GREAT JOB OF BUILDING OUT A SOLID ONE 1X ROAMING -- 1X NETWORK, TOO. Jeff Gardner - Alltel Corp. - CFO, EVP Just to follow up, I think that your question on national trends is important for a couple of reasons. Kevin mentioned the effect on retail and how it helps us there. If you look at our numbers this quarter, I think it's also important to look at wholesale and how well we did on a wholesale side. Other carriers, specifically our large 1X partner, continue to sell a large number -- a large proportion of national plans and we are benefiting on the roaming side. Our roaming minutes of use grew at a more rapid rate than our retail minute of use growth. As a result, you saw the 10% Heritage growth rate year-over-year on the wholesale side. Mike McCormack - Bear Stearns - Analyst Where where do you guys stand on the Verizon roaming agreement? Are you still in parity or are you a net receiver or payer? Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 11 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  12. 12. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call Kevin Beebe - Alltel Corp. - Group President, Operations Well, the rates are reciprocal. Jeff Gardner - Alltel Corp. - CFO, EVP The volume levels haven't changed that much. We are both, it's both companies are benefiting a great deal, so our volume is growing a ton on their network and I talk about the kind of growth rates we are seeing from our side. So they are not changing materially. They are both growing nicely. Mike McCormack - Bear Stearns - Analyst So roughly in parity. Jeff Gardner - Alltel Corp. - CFO, EVP I think that's fair. Mike McCormack - Bear Stearns - Analyst Just one quick follow up, I'm sorry, the percent of your base that's prepaid? Kevin Beebe - Alltel Corp. - Group President, Operations That's still around, it's less than 10%, say 8 to 10%. Mike McCormack - Bear Stearns - Analyst Great. Thanks, guys. Kevin Beebe - Alltel Corp. - Group President, Operations You're welcome. Operator Your next question in comes from Viktor Shvets with Deutsche Bank. Viktor Shvets - Deutsche Bank - Analyst Good morning, everybody. Could I just very quickly clarify the guidance of 3.30 to 3.50? Clearly it does not include $30 million. What about restructuring associated or the cost restructuring costs associated with Western Wireless? Could we quantify that over the next couple of quarters and whether that is included or excluded from 3.30, 3.50? The other question I had was on data generation in the wireless business. Could you just give us some idea of how much data actually was generated, the subscriber basis or percentage of revenue? Thank you. Jeff Gardner - Alltel Corp. - CFO, EVP Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 12 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  13. 13. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call The -- I think on the guidance question, to answer at a high level as specific as we can get on it is that, it includes the dilution that we expect from Western and the other deals between now and the end of the year. You're right, it doesn't include the $30 million, but the rest of the issues related to that transition are included in there and will be in the $3.30 to $3.50 range. Kevin Beebe - Alltel Corp. - Group President, Operations Hey, Viktor, it's Kevin. On the data side, data revenue was about 4% of our total ARPU, which if you do the math is right around $2 per customer. Viktor Shvets - Deutsche Bank - Analyst Okay. Great. Thanks. Jeff Gardner - Alltel Corp. - CFO, EVP And, Viktor, just to clarify, this is Jeff again, there will be some other transition expenses that we can't break out right now that would not be included in that, most of them are related to Western, things like billing conversion, et cetera. Viktor Shvets - Deutsche Bank - Analyst What will be the magnitude of those expenses are you saying? Jeff Gardner - Alltel Corp. - CFO, EVP We can't provide guidance at this point in time. Viktor Shvets - Deutsche Bank - Analyst Okay. Thank you. Operator Your next question comes is a follow-up question from Thomas J. Lee with JP Morgan. Thomas J. Lee - J.P. Morgan - Analyst Hi, guys. Just a quick follow-up question, I realize that the FCC, one of the conditions of approving the merger was the divestiture of about 1.5 million pop. I was hoping you could give us an idea of what you expect in terms of timing of when you may divest these markets, how, I guess how they may affect cost? And then I guess an idea of is your preference to sell these assets to a national carrier? Or do you have an ability to kind of structure who you end up selling these assets to? Scott Ford - Alltel Corp. - President, CEO Hey, Tom, this is Scott. Well, we have -- to take that question down to the kind of its piece parts as best I can, we have about four months to execute a sale to be within compliance of the original order absent a waiver or any other changes The trustee and operating team are in place. We have had discussions. It's a small industry, as you know, so as soon as we merged with -- as soon as we announced Western, everybody in the industry looked around and said, hmm, the rural properties in Kansas and Nebraska might be available by the end of this, and they all started putting together their best ideas of what they thought might be attractive to us, and frankly, before we ever made an announcement that we were going to sell it, we had been approached by several parties wanting to do a trade in the event we were forced to do that. Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 13 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  14. 14. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call SO WE STARTED THE PROCESS BEFORE THE ACTUAL FCC ORDER ON AN INFORMAL BASIS. SO I THINK WE WILL BE ABLE COMPLY WITH THE ORDER AND GET THE TRANSACTION DONE. LOOK, LIKE EVERYBODY ELSE IN THE INDUSTRY, IF WE CAN GET A PROPERTY SWAP DEAL, WE THINK THAT WOULD BE GREAT, BUT WE ARE NOT GOING TO LET THAT BE THE END OF THE DAY IN TERMS OF DOING THE RIGHT THING AND MOVING ON. MY GUESS IS WE WILL BE ABLE TO GET SOMETHING LIKE THAT DONE. Thomas J. Lee - J.P. Morgan - Analyst Great. Thanks, guys. Rob Clancy - Alltel Corp. - VP, IR Aileen, we have time for one more question. Operator Your final question comes from Donna Jaegers with Janco Partners. Donna Jaegers - Janco Partners - Analyst Thanks for taking my question. On the synergies that you mentioned, those are mostly on the cost side if I'm correct? Jeff Gardner - Alltel Corp. - CFO, EVP That's right, Donna. Donna Jaegers - Janco Partners - Analyst So on the revenue side, obviously there's going to be some revenue cross-selling opportunities with moving Western on to the national roaming arrangement. Jeff Gardner - Alltel Corp. - CFO, EVP Right. Donna Jaegers - Janco Partners - Analyst And also possibly doing a GSM overlay. Have you worked with any numbers in that range? Jeff Gardner - Alltel Corp. - CFO, EVP Well, at the time we announced the deal, we did talk about that a portion of our synergies would be related to specifically our ability to sell more national plans in those markets and helping drive recurring revenue growth, much as you're seeing in the Alltel markets today. Scott Ford - Alltel Corp. - President, CEO On the roaming side, particularly, the teams are sitting down, we really kept them separate until everything was finished with the Government and the deal got done. Those teams actually are working together last week and this next week and owe us a detailed look at what our options are on that front here in the next couple of weeks. So you are really right at the beginning of that process on the wholesale side. Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 14 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  15. 15. FINAL TRANSCRIPT Aug. 04. 2005 / 8:30AM, AT - Q2 2005 Alltel Corp. Earnings Conference Call Donna Jaegers - Janco Partners - Analyst Okay. And then just on the national plans for Western, any sense of timing as far as how fast you will be able to roll those plans? Kevin Beebe - Alltel Corp. - Group President, Operations We are working fast and furiously on that right now, Donna. It will be -- it will be dependant upon how quickly we can do some work to include those plans in the existing billing systems, because we are likely to do that before we change our -- to our billing systems. Donna Jaegers - Janco Partners - Analyst Thank you. Kevin Beebe - Alltel Corp. - Group President, Operations You're welcome. Rob Clancy - Alltel Corp. - VP, IR Thank you, folks, for joining us this morning. We appreciate your interest and support. I will be available all day, if you'd like you may contact me at (501)905-8991 for further follow up. Thanks. Operator Ladies and gentlemen, this concludes today's second quarter earnings conference call. You may now disconnect DISCLAIMER Thomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies mayindicate and believe that the assumptions underlying the forward- looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. © 2005, Thomson StreetEvents All Rights Reserved. Thomson StreetEvents streetevents@thomson.com 617.603.7900 www.streetevents.com 15 © 2005 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

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