Filed by AT&T Wireless Services, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: TeleCorp PCS, Inc.
Commission File No. 000-31941
THE FOLLOWING IS A TRANSCRIPT OF A RECORDING OF AT&T WIRELESS'S EARNINGS
CONFERENCE CALL:
AT&T WIRELESS EARNINGS
CONFERENCE CALL
Host: Joan Brown
October 23, 2001/10:00 a.m. CDT
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AT&T WIRELESS EARNINGS
CONFERENCE CALL
October 23, 2001
10:00 a.m. CDT
Moderator Good Morning, ladies and gentlemen. Welcome to the AT&T
Wireless Earnings Conference Call.
At this time, all participants are in a listen-only mode.
Later, we will conduct a question and answer session.
As a reminder, this conference is being recorded.
I would now like to turn the call over to Ms. Holly Ash.
Ms. Ash, you may begin.
H. Ash Thank you, and good morning. This is Holly Ash, Vice
President of Investor Relations at AT&T Wireless Services,
and I'd like to welcome you to our Third Quarter 2001
Earnings Call.
Joining me this morning are: John Zeglis, Chairman and CEO;
Mohan Gyani, President; and Joe McCabe, CFO and Executive Vice
President.
John and Mohan will kick things off in a minute by reviewing
our performance for the quarter and discussing the operations
of our core mobility business. Joe will then offer additional
remarks on our financial performance, along with the outlook.
Following our executive presentations we will open the call to
questions and be joined by: Michael Keith, President of AT & T
Fixed Wireless; Lou Schakrin, Executive Vice President
Corporate Strategy and Planning; and Greg Slemmins, Executive
Vice President Wireless Network Services.
I'd like to point out this morning that this morning's call is
being Web cast on the AT&T Wireless Investor Relations Web
site, which is accessible at att.com/wirelessir. The call will
also be
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archived on that site and available for replay shortly after
we conclude.
I trust you've had an opportunity to review this morning's
release and our accompanying earnings commentary, which
provide detailed financial information on AT&T Wireless' third
quarter results. These documents are also available on the
wireless Web site, which, again, is att.com/wirelessir.
Before I turn things over to John I'd like to caution all
participants that this morning's call may contain
forward-looking statements reflecting management's beliefs and
assumptions concerning future events based on currently
available information. Listeners are cautioned not to put
under reliance on forward-looking statements as they are not a
guarantee of future performance and remain subject to a number
of uncertainties and other factors that could cause actual
results to differ materially from forecasts.
A more detailed description of these uncertainties and risk
factors is detailed in our filings with the Securities and
Exchange Commission, which I encourage you to review.
With that, let me now turn it over to John Zeglis.
J. Zeglis Thanks, Holly.
Good Morning, everyone. Thank you all for dialing in.
Today, we at AT&T Wireless, are reporting yet another solid
quarter of results. We're going to speak to you in an order
and with assigned subjects that you've become accustomed to
hearing from us. We have a little more than usual to talk
about this morning in our prepared remarks, so if those take a
little longer, please bear with us. We'll tack on extra
question time to make up for the longer presentations.
As we swing into the discussion, I'd like to give you three
comments up front. The first is that though we are reporting
our very first quarter of results as a fully independent
company, we've operated as an autonomous unit since we were
announced as a tracker some 22 months ago. Therefore, what
you're seeing is a continuation of the planning and execution
and accelerated growth that this team has accomplished over
the last 7 quarters.
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The second opening comment is that the somewhat slower growth
of the wireless sector in 2001, which was predicted at the end
of 2000, and the soft economy, and September 11, and its
uncertain aftermath, have all made our guidance darn hard to
meet. Still, we've done it quarter after quarter without
sacrificing our goal of balance to growth, growth that centers
on valuable customers and accelerating EBITDA production,
growth that forbids us from chasing bad customers at prices
that will never generate value. The fourth quarter will be the
most challenging of all for us to grow with these principles,
but we're not backing away from our guidance. Nor, despite the
economy's softness are we re-thinking our capital spending
plans in a major way.
We believe long-term wireless growth in this country is
virtually assured. Speed bumps and soft patches are just that,
and are not reasons for major slowdown in our capital
spending. We build to meet our demand forecasts, short- and
long-term, and we're confident that the paying traffic will be
there to return handsome yields on the cap-ex that we continue
to invest.
The third opening comment is about September 11th. To all the
AT&T Wireless investors out there, I want you to know that the
people of your company performed like champions during this
crisis, restoring services, rushing thousands of phones to the
front lines, and caring for a lot of traumatized customers.
This cost us some money, both in unanticipated expense and the
minutes we erased for all of our customers in the New York
Tri-State area, in DC, and in Pittsburgh on September 11.
All in, the financial impact was not huge, just into
double-digit millions so far. But whatever the consequences,
our response was the right thing to do, and we'll make it up
elsewhere for the year.
Now, let's go to the numbers. Our consolidated results for the
total company show $3.5 billion of total revenue, a 25%
increase over the third quarter last year; $77 million in net
income; an EPS of positive $0.03 per share; and $1.2 billion
in total capital spending for the quarter. As always, our
results are more meaningfully discussed in the context of
individual units, so let's begin with our core business
mobility.
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First, the customers: We had 748,000 net additions to our
subscriber base in the third quarter. This puts us at the high
end of our guidance, and brings our total consolidated
customer base to $17.1 million. We made the quarter, moreover,
with a very modest number of pre-paid customers in the mix.
Our pre-paid customers, as a percent of our total base,
actually declined. Affiliates and partners of AT&T Wireless
had 212,000 net adds during the quarter. That brings the total
AT&T Wireless system to 960,000 net adds for the third
quarter, and 19.7 million ending subscribers.
We are particularly pleased with our incremental yield per
covered POP at AT&T Wireless. Our 748,000 net adds on a
pre-TeleCorp footprint of 166 million POPs equates to a .45%
incremental penetration rate. That's very good against most
other third quarter results being reported.
We are not as pleased with our churn numbers. In fact, we're
disappointed that total churn rose to 3.1% for the quarter.
Post-paid churn remained flat with the second quarter at 2.6%;
pre-paid churn moved up significantly accounting for 50 basis
points of the total 3.1%. Mohan will have lots more to say on
churn in just a few moments.
Over to revenue, total service revenue from mobility grew to
$3.2 billion. That's over 700 million of new service revenue
measured against the same period last year. It's a stronger
than expected 29% increase over service revenue in the third
quarter of 2000. Average revenue per unit came down just
slightly by about 20% from last quarter, but basically held
strong at 63.60. We believe this is evidence that we're able
to deliver quality growth even as we penetrate the population
more deeply. What you're seeing are the results of our more
intense focus on certain higher value segments, plus our
customer base, overall, continues to grow its usage, which
reached a new high for AT&T Wireless this quarter--that's 389
minutes per subscriber per month.
EBITDA growth continues to show strength. Mobility EBITDA grew
54% over the third quarter last year. It grew to $803 million.
Our EBITDA margin, expressed as a percentage of service
revenue, was 24.8%. That's 400 basis points better than our
margin back in the third quarter of last year. We'll have more
on the cost drivers of this improvement when Mohan and Joe
take their turns.
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Before I hand to those guys though I'd like to give you a word
on some of our strategic initiatives that made news, or at
least made important progress during this past quarter. First,
service quality: We invested a lot of capital again in the
third quarter--$1.1 billion in our Mobility business. All of
this is directed at our goal of continually improving network
quality and the customer experience at AT&T Wireless. The
ultimate measurements of success are, of course, the financial
and operating metrics I just passed through, but once in a
while we get third-party measures of our progress in the just
released JD Powers survey of wireless customer satisfaction in
nation's top markets. In the 20 markets we were measured, AT&T
Wireless was top-rated in 13. Verizon was the next most
successful with only 8 wins out of the 23 where they were
evaluated. Sprint PCS won 2 markets. And when AT&T Wireless
went head-to-head with Verizon, we won 11 times, Verizon 5.
Beat them better than 2 to 1.
These studies surely have their weaknesses but we're pleased
that our efforts toward better quality show up in this kind of
customer feedback.
Next, TeleCorp: A couple weeks ago we announced the
acquisition of the 77% TeleCorp we don't already own. We're
paying for the TeleCorp equity with 9/10th's of an AT&T
Wireless share for each TeleCorp common share, and we're
assuming 2.1 billion of TeleCorp's net debts, and 221 million
of its preferred stock. That was a transaction of about $4.7
billion when it was announced.
We don't want to rehearse all the details of the deal again
this morning. We do want to reiterate that this was the
strongest of all possible fits against our acquisition
criteria. We are looking to enlarge our coverage in major
markets. TeleCorp gives 16 of the top 100 cities, among its 32
million covered POPs. We look to purchase at favorable capital
market multiples; we look for operating metrics that we know
we can improve; we look for a fit inside the AT&T Wireless
balance sheet that preserves our financial strength and
doesn't threaten our full funding of operations.
We want to say also that we don't expect this to be a
difficult transaction to close. We need TeleCorp share-owner
approval, for which we already have irrevocable proxies for a
majority of the
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votes. We need FCC and DOJ approval to merge
TeleCorp's basically non-overlapping markets into the AT& T
Wireless company. We expect to have all of this in hand and to
close no later than mid-2002.
Finally, we want to assure you that we know how to implement
major acquisitions like this one. We'll place some of our
people inside TeleCorp even before the closing in order to
work with TeleCorp people in Finance, IT, Marketing, Network
Operations, and they'll be there for help with the integration
right after closing. We'll operate TeleCorp, initially, as a
stand-alone entity so as not to interrupt the company's
momentum or lose local management's full accountability for
results. We'll go for the low-hanging fruit early: brand,
device procurement, GSM network build, redundant headquarters
functions, and so forth; and we'll make a graceful transition
to the full AT&T Wireless model after the tough work of
harmonizing systems is concluded, probably a year or so after
closing.
A third strategic initiative is our deployment of a global
standard GSM GPRS UMTS voice and data network. As the year has
worn on we have become increasingly confident that we will
meet our yearend coverage goal of having built GSM, GPRS in
market representing 40% of our footprint. We'll finish the
other 60% of our existing footprint next year. We'll also do
some of TeleCorp in 2002, but we don't know how much yet.
As to cost, we have essentially completed the Seattle GSM GPRS
build out, and we can tell you that we hit our cost targets on
the nose. We spent in Seattle almost precisely what we
expected on a per POP basis to be Seattle's share of this
year's, roughly, $1 billion budget to do the 40% build
nationwide. We expect this per POP cost to hold for next
year's 60% build as well.
Launches are on schedule. We launched Seattle on a limited
basis on July. As of early this month, Seattle was joined by
Portland, Phoenix, and Las Vegas--all four markets selling GSM
to all segments in all channels. We expect to launch
additional cites by yearend.
The Motorola TimePort is our starting out device in all these
markets. The phone and the network have performed well for our
early customers in Seattle: Good quality voice, GPRS data
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transport in the 40-50 kilobits per second range. Over the
next month we have a nice lineup of devices coming to market.
The TimePort will be joined by two new Ericcson phone,
including a Bluetooth model; by a Nokia phone; by the Seimens
GSM TDMA gate phone; by a dual browser Ericcson phone; some
data centric devices; and of course wireless modem cards for
your laptops.
About Spectrum, I'm going to only say that none of the roll
out, including the build-out in TeleCorp territory depends
upon us getting more Spectrum. We, and our affiliates, can do
GSM, GPRS in virtually all of the top-100 cities with what we
already have.
And, finally, just a note on 3-G to remind you that our GSM
build out is North American phenomena. As of the third quarter
this year, Rogers AT & T, of which we own a third, completed
its roll out of GSM GPRS in the top-25 Canadian markets,
covering two-thirds of Canada's population. By yearend Rogers
will have GSM coverage over its entire PDMA footprint, 83% of
Canadian POPs with even more to be built in 2002.
Fourth, and finally, just last week we made a strategic
decision about a non-strategic business, Fixed Wireless. We're
going to exit this business completely. We estimate this will
cost around 300 million of cash, starting right now. We also
estimate this will entail a write-down of assets of
approximately $1 billion, all for a total charge against
earnings in the range of $1.3 billion, which will be booked
during the fourth quarter.
We've made this decision very early in our life as an
independent company, but we believe the decision is clearly
correct, comes clearly at the right time, and all the more so
when you recall the path we've traveled to this point, which
you'll recollect began when we went public as a tracker in
early-2000 and were assigned the AT & T Fixed Wireless assets
and a broad scale coverage plan. But at the beginning of 2001,
with the announcement that we'd be an independent company, we
knew we wouldn't need to protect AT & T's long distance space
with fixed wireless connection, and we also knew that we
wouldn't have the AT & T balance sheet to fund the fixed
wireless business.
So at that point what we had on our hands was a non-strategic
opportunity to create additional value. That's why we set
targets
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for 2001 that were downsized from our days as a tracker
but that would nonetheless show the business' scalability
to about 100,000 customers, as well as its road to
profitability. For the first two quarters of this year, we
were on track toward those objectives, but in the third
quarter the business went off track. It became clear we could
not do both 100,000 customers and meet our EBITDA objectives.
We therefore went immediately to the fix, sell, or close
drill. As to fixing, you need to start with where we're off
track. Towers are taking too long to locate and costing more
at this point than the plan calls for, our premise
installation costs rose after a dispute with the supplier that
had contracted to do that work for us, carrier costs early in
a customer's life are high, number ports and back haul
provisioning from the ILECs have not improved and that
exacerbates our cost challenges. The short of it is this:
These challenges could probably be met given extra time, but
the business would be a year delayed on its financial model
and we don't have that kind of patience for a non-strategic
business that requires as much cash as fixed does.
As to selling the business, we've been out looking, which we
told you we'd be doing because we wanted funding help even if
we carried on. We have found no takers for the service
component of the business, the network, and the local markets.
We found quite a bit of early interest in buying or funding
the engineering operation of the business, the R & D component
of the unit, if you will. This is an upside to the shutdown
case. We might be able to monetize some of the innovation and
intellectual property value of the business in this manner.
But we want to be clear, AT&T Wireless will not carry on even
this part of the business in year 2002.
That leaves exit as our choice, and we are moving quickly to
shutdown the business. This will take a few months because
we're dealing with people, local dial tones. We don't believe
we can just abandon customers on 30-60 days notice. That's not
right for the customers, that's not right for the AT & T
brand. So, we'll work with all 47,000 fixed wireless customers
to create a seamless return to ILEC service or where ever they
want to go, and we'll remove the equipment we've placed on
their premises.
For the bulk of our customers, we expect this to take at least
through the end of the first quarter next year, and then some
more
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time for the stragglers. A lot depends on the level of ILEC
cooperation. We're in the process of finalizing our plans now.
There's value we can reclaim from the fixed wireless assets
for our Mobility business. We've already diverted to Mobility
most of the PCS spectrum originally designated for fixed, but
in Dallas and San Diego our fixed systems use 1900 PCS
spectrum. We needed to retrieve that spectrum eventually for
UMTS anyway; this makes its return straight forward and
near-term.
We'll also continue to hold the WCS spectrum, which may be
useful for high speed mobile data some day. And we'll have
some additional towers that fixed erected that can now be
examined for possible use in expending mobility capacity.
All in all, we believe this decision is as clear-cut as it is
bittersweet. Our very talented people made a business out of
an invention. The business provides a first mile connection
that quite probably will some day be regarded again in the
capital market as extremely valuable. But as an independent
company, we have neither the strategic imperative nor the
patient capital to continue funding fixed wireless.
That said, let's go back to the center of AT & T and over to
Mohan for a discussion of our operating drivers.
M. Gyani Thank you, John. Good morning and thank you for joining us.
First, let me echo John's comments. We are very pleased to
deliver strong results for the seventh consecutive quarter,
since we launched as a tracking stock. This performance is no
accident. The AT&T Wireless management team is focused and has
set the bar high as we aim to provide the best customer
experience and become the pre-eminent wireless carrier in
North America. Let's get into the details of operations in the
Mobility business. I'll begin with our customers.
We continue to deliver strong subscriber growth, and this
quarter was no different with a net addition of 748,000 new
subs for a total of 17.1 million as of the third quarter of
2001. This brings us closer to our yearend target, up around
20% growth, from the 2000 subscriber levels of about 15.16
million.
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If you do the math, you're right to think we have a big number
to hit for subscriber growth in the fourth quarter of this
year. It will be challenging, especially in light of the
slowed economy and its impact on consumer spending and
business layoffs. However, when you consider that we brought
on 865,000 subscribers in the fourth quarter of last and have
since then added the Houston, Los Angeles, and Indianapolis,
it is not unreasonable for us to shoot for 900,000-1,000,000
subscribers in the fourth quarter. This would get us to
approximately 20% growth for the year.
I want to be very clear. We will not chase what we expect to
be non-profitable customers just to hit this metric. At the
end of the day, we're not managing the business to any one
metric or any one quarter.
Now let me turn to a topic uppermost in my mind--churn. Third
quarter churn came in at 3.1%, up sequentially from the prior
quarter's 2.9%. Post-paid churn held steady at 2.6%, while the
impact of pre-paid churn increased to 50 basis points. We are
not satisfied with our churn, either post- or pre-paid, and we
will not reduce our focus on this key driver and view the
opportunity to get to industry-best levels as upside
potential.
Clearly, we are hitting our overall metrics in growth and
profitability but we're doing it the hard way by bringing on
higher growth additions as opposed to keeping the customers we
already have. Let me offer you some details by breaking churn
into different key categories.
Post-paid churn can be broken into voluntary and involuntary.
Our involuntary churn has picked up significantly in recent
months, due in part to economic softening and the performance
of a particular distribution channel. In fact, compared to all
of the other components of our post-paid churn, our
involuntary churn is now furthest from industry standards.
We've taken immediate steps to bring this under control. The
distribution channel in question has been shut down.
Modifications have been made to both our credit scoring
policies and models as well as to the up front customer buying
experience.
Another impact on involuntary churn is from a service limit
monitoring type of a program that we launched towards the end
of 2000 called WUM, Wireless Usage Manager. WUM was designed
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to make service available to customers who would have
otherwise not been able to get service without deposits on our
credit policies. As I said, we launched the program late in
2000. We closely monitored it, and then quickly shut it down
earlier this year as the type of customer it was attracting
did not satisfy us.
The effect of this program was an increase in involuntary
churn. The good news is we are out of the business of
attracting customers with a high propensity for bad debt and
at risk to churn. This will help to control involuntary churn
as we move forward.
With respect to voluntary post-paid churn, where we are much
closer to industry benchmarks, we have introduced new tools
and capabilities in the third quarter to our carrier and sales
representatives. Very early indications are that these tools
should yield a positive impact.
Let me move to pre-paid. We know pre-paid is one of the things
driving churn, so I want to peel back another layer of the
story and provide some more detail on our pre-paid churn. But
first, let me reiterate that the economics behind pre-paid are
very different, and we do expect much higher pre-paid churn
that in post-paid.
For quite some time now we have been aggressively shutting
down all of our old pre-paid programs in our existing markets
and migrating to the enhanced pre-paid wireless program
introduced late last year. As you know, any time we ask a
customer to make a decision we negatively impact churn. The
good news is that the migration is complete and all of our
pre-paid customers in our existing markets, which do not
include those we acquired last year, are on the new EPW
platform. On the other hand, in markets we acquired last year,
we continued to aggressively migrate all of the old pre-paid
programs they had to our EPW platform.
The jury is still out on our pre-paid program. We continue to
make modifications to improve its performance. We have
recently adjusted price and duration of the cards and expanded
distribution through places like Western Union.
Over all, we are managing risk by balancing the number of
pre-paid customers as a percent of our base. To this end,
pre-paid remains at the single digit level as a percent of the
total base. In fact, due to the high churn this quarter, we
experienced negative
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pre-paid net adds for the quarter. It is still our belief
that pre-paid can add incremental penetration while at the
same time bringing on profitable customers and mitigating
risk. The driving economics behind pre-paid remain
fundamentally different from post-paid.
Let me end the focus on churn by setting some expectations.
There is a higher than desired amount of involuntary churn
embedded in our customer base at this time and it will take a
quarter or two to work its way through. On the pre-paid side,
we need to complete the migration in our acquired markets to
our EPW platform. As we cross these hurdles, we do not see any
systematic reason for our churn not to be at industry
benchmark levels.
Next, let me move to revenue: Although ARPU decreased
sequentially year over year, it was higher than we expected,
which in turn helped drive higher than expected service
revenue. A key driver of ARPU is .... Aided by targeted offers
in the market place, our customers are continuing to recognize
our wireless value proposition and are using this service more
and more.
Another driver for our ARPU is our concerted effort to add
more post-paid customers within our direct channel and to
manage to the right balance between post- and pre-paid
customers. While we may be pleased with our ARPU this quarter,
and as stated earlier, not pleased with churn for the quarter,
I want to reiterate again that we do not manage this business
for any one metric or by any one quarter. We take into
consideration how all of our metrics measure up and how we can
best execute the business as a whole for overall sustained
profitability.
Let me turn to cash flow: EBITDA for the Mobility business was
$803 million in the third quarter, a 53.8% increase over the
third quarter of last year. Mobility EBITDA margins, as a
percentage of service revenue, increased to 24.8% from 20.8%
in the third quarter of last year, a 400 basis point increase.
EBITDA margins continue to increase, and this is confirmation
that our ability to execute the key drivers involved in
producing EBITDA have been successful.
We continue to bring off-net roaming onto our network through
footprint expansion and targeted service offers. Also, the
hard bargain roaming rate reductions are continuing to pay
off.
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Finally, we continue to cut unnecessary internal cost out of
the business. We have limited discretionary spending. More
importantly, we have held headcount essentially flat since the
end of last year, despite the huge growth in our business as
well as the build out of our next generation network.
Cost per growth add in the third quarter came in at $330.00, a
7.2% decrease from the prior year's quarter, and comparable to
the second quarter of this year's CPGA of $332.00. The drivers
behind CPGA continue to be the same. They include continued
focus on shifting from indirect to direct channels. At the end
of the third quarter, we had 600 stores, of which 27 were
opened in that quarter. We estimate we will open even more
than that number of stores in the fourth quarter of this year.
Additionally, lower handset ...have also impacted CPGA
favorably.
As a result, despite the fact that we are entering into the
heavy marketing and promotion season in the fourth quarter,
which usually drives CPGA quite a bit higher, we believe that
CPGA for the fourth quarter of this year will increase only
slightly.
Let's talk about cap-ex now, and I'll update you on our
progress. It's pretty straight forward. We're on track with
our spending and we're on track with the build out of our next
generation GSM GPRS network by being on time and on budget.
For the third quarter, capital expenditures from Mobility were
$1.1billion. As we have explained in previous calls, roughly
20% of our cap-ex this year have been allocated for the
...down of GSM GPRS, which we will do across markets
representing 40% of our covered POPs. The remainder will go
primarily towards capacity and quality improvement of our TDMA
networks.
That implies that we will spend roughly $2 billion in capital
for the remainder of the year for the Mobility business. This
is consistent with the way we have spread our capital
commitments in past years.
Let me digress for a moment and spend a few seconds on our New
York network. We told you several months ago that we were
undertaking a major over haul of the New York network, aimed
at enhancing our networks and increasing capacity. This
project
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consisted of replacing the existing network with an entirely
new network on an expandable platform throughout the New York
market. Essentially, we rebuilt from the ground up and
installed 13 new switches, new radios in over 1,000 cell
sites, and a completely new transport infrastructure over the
last 18 months.
Simultaneous with the success of this project, we are
deploying our most aggressive build plan to date in the New
York market, activating over 400 new cell sites in 2001 alone.
The main goal of our New York network overhaul was to optimize
our network performance, and I'm pleased to say that we can
report "mission accomplished." With the work we've done, we
now meet or exceed industry benchmarks for all the key network
performance metrics.
What makes this story even more compelling is the fact that at
present, the New York network is also at a historical all-time
high in terms of carry traffic at these new quality levels.
Even on September 11th, when we experienced enormous traffic,
and we saw over three times the normal volume, not one single
switch in New York was out of service because of heavy volume.
Fortunately, as a result of our network program in New York
for the past two years, we were able to provide much needed
emergency services to agencies responding to the tragedy, not
to mention those directly impacted by the disaster.
Admittedly, the hard part is still in front of us. There has
been a negative perception about our network in New York. We
realize that and we will work to change that perception. Our
job now is to continue our pursuit of improving our quality of
service and to start changing those perceptions of the people
that really count--our customers.
In conclusion, let me recap. We have had our seventh
consecutive quarter of meeting or beating expectations,
despite a tough economic environment. We delivered strong net
adds and reported excellent revenue growth. While we're not
satisfied with our churn, we have a game plan in place and
will continue to work at it to bring our churn in line with
industry best. Regardless, we were able to grow profitably and
expand our margins by 400 basis points from the prior period
in the year 2000.
AT&T WIRELESS EARNINGS
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As the largest independent unaffiliated wireless carrier in
North America, we offer a strong value proposition to our
stakeholders. We are one of richest spectrum portfolios in the
industry. We are deploying global standard next generation
technology. We are partnered with the world champions of
wireless data. And, finally, we are executing rapid and
consistent growth within an industry that is poised for
continued growth.
We will continue to strive to deliver this consistent and
exciting growth story during a time of great economic
challenge and uncertainty.
Let me now turn the call over the Joe McCabe to lead us
through the details of the numbers.
J. McCabe Thank, Mohan.
Well, it really has been a busy few months, so before I dive
into the financials for the quarter, let me touch on our two
announcements from a financial perspective.
First, fixed wireless, we are currently in the process of
finalizing the financial impact of the plans to exist the
fixed wireless business and will have a better indication of
the charge in the fourth quarter. Our preliminary estimate of
the shutdown cost is approximately $1.3 billion. The asset
write-down will be approximately $1 billion of the $1.3
billion, and this will not have a cash impact as we go
forward.
The wind-down costs will be approximately $300 million, and
these will have a cash impact. These are costs for termination
of contracts, real-estate obligations, severance, cost to move
customers back to the ILECs, cost to continue to run the
operations until the customers are moved back to the ILECs. We
will fine-tune these estimates in the coming months and book
them during the fourth quarter.
Now to TeleCorp: John laid out the four criteria for
acquisitions. Let me spend some time on the last two criteria:
substantial opportunity for value creation; and strong balance
sheet maintained. Going a little bit deeper into the business
case to help you understand our estimate of the opportunity
for creating value. Our conservative case focused on moving
TeleCorp's performance
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Page 16
to the current and expected performance of our own markets.
We believe this can be done by increasing the penetration
that TeleCorp markets by way of: re-branding the markets with
AT&T Wireless; introducing AT&T Wireless offers, such as
Digital One rate; additional distribution channels
(particularly direct business sales); access to our national
retail outlet; and lastly we will deploy the next generation
network earlier than TeleCorp planned. All of these should
move TeleCorp penetration up to the AT&T Wireless levels over
time.
We also expect to improve the EBITDA margin to the same levels
we expect out of our own markets. Besides the increase in
penetration, there are areas of cost and expenses that can be
improved because of our scale and the elimination of
redundancy, particularly, network costs where we can leverage
our inter-connect and LD contracts to reduce the cost; roaming
costs between the two companies will be eliminated, allowing
better national and regional offers; sales and marketing where
we can leverage our national retail contracts, our national
advertising campaigns, our device costs--all these will help
reduce the cost to add and retain customers, and of course the
elimination of duplicative expense, especially in corporate
functions and back office function. So the foundation of the
business case was to move TeleCorp to the same level of
performance we are achieving and expect to achieve in our own
market. We'll give you further details surrounding the
synergies and integration costs as we come closer to closing
the deal.
Now, let's go a little deeper into the fourth criteria, our
ability to maintain a strong balance sheet. We continue to
remain committed to maintaining our existing credit rating.
Prior to the announcement, we shared with the credit agencies
our view of the impact TeleCorp would have on our balance
sheet. We should them that even after the transaction we are
comfortably within our targeted net debt to EBITDA ratio of 3
to 3.5 times. As you know, the credit agencies after the
announcement reaffirmed our mid-Bbb credit rating. So we were
able to do this deal and maintain a strong balance sheet.
Since the announcement of the transaction, we received a
number of questions specifically around the preferred security
and the TeleCorp debt. On the preferred security our current
plan is to replace these preferred securities with a "like"
AWE instrument.
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As to their debt, there are three major components of their
current outstanding long-term debt: high yield bonds, which is
the bulk of the long-term debt; a bank credit facility; and
other debt, including Lucent notes and government financing.
Obviously, we will take on the existing TeleCorp debt in one
form or another once the transaction closes, and our balance
sheet gives us lots of options on their debt. For example, we
have the flexibility to do any one of the following: We can
keep them outstanding at the subsidiary levels under maturity;
we can keep the bonds outstanding until the first call dates;
or we can make an outright tender offer for the bonds. We are
evaluating the economic and operation impacts of these
alternatives and will let you know our course of action once
we make a decision.
Let's move back to AWE's third quarter results and the
guidance for the balance of the year. I'll start with the
balance sheet as of September 30, 2001.
We ended the third quarter with a net/debt position of $1.6
billion. We had a cash position of $4.9 billion, and
offsetting that, senior notes of $6.5 billion. Our net/debt
increased $1 billion from June 30th. The primary drivers of
this change was cash from operations, which was $782 million,
offset by the capital expenditures of $1.2 billion, and an
increase in our equity investment of approximately $580
million.
With that as a backdrop, the operations of the business
continue to be fully funded through at least the end of 2002.
This includes the funding for our investment into Alaskan ...
& Wireless for the next wave spectrum won during the auction.
It also takes into consideration the cash impact we are
anticipating from the closing of the fixed wireless operation,
and includes the additional TeleCorp funding requirements
after the close. However, all of this will require us now to
access the commercial paper market, which we're prepared to do
given our $2.5 billion credit facility that we put in place
last February. All other strategic investments are not
included, and as we've said in the past small strategic
investments will be offset by non-strategic divestment.
Moving to our income statement, John and Mohan took you
through the details of the revenues and the EBITDA. I'll take
your through some of the "below EBITDA" items for the third
quarter.
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Net income for the quarter was $77 million, and EPS came in at
$0.03. This was driven, primarily, by other income, which was
a total of $114 million, and an income tax benefit in the
quarter totaling $119 million. Other income included a $56
million market-to-market adjustment related to the fair value
adjustment associated with the warrants in AT&T Wireless
common stock that are held by NTT DoCoMo. The income tax
benefit resulted from a decrease in our annual estimated
consolidated income tax rate. This decrease resulted from our
current estimate of operating income, from adjustments
associated with the split-off from AT & T, from income
associated with the market-to-market adjustments in the DoCoMo
warrant, and increase in losses associated with our equity
investment. These two items had an impact of approximately
$0.07 on the earnings for the quarter.
Let me now turn to the forecast for the remainder of the year,
which would be somewhat anti-climatic, since you now have
three quarters of results and a confirmation of the full year
guidance. Let's start with the Mobility business.
For subscribers we've been saying that for the year we'll grow
subscribers around 20%. That will take a fourth quarter net
add number between 900,000 and 1,000,000. And we're not
uncomfortable with estimates that place us in that range. We
continue to watch and react to the soft economy and the fourth
quarter competitive offers. We are making sure that we have
competitive offers in their markets and at the same time we
are remaining disciplined in our offers and are not chasing
unprofitable customers. End of the day, this will be a record
quarter and year of AT&T Wireless.
For service revenue growth: We are pleased with our
year-to-date revenue growth and average revenue per customer.
As Mohan said, these results are due to continued increases in
usage and a solid mix of post-paid and pre-paid additions. For
the last two quarters, we've been steering you to the lower
end of the 30-35% growth range because of the softness in the
economy. Based on our year-to-date results, we now anticipate
service revenue growth for the full year 2001 to be at the
higher end of that 30-35% range.
Our target for EBITDA growth continues to be in the mid-60%
range, and as John said earlier, we will absorb the cost from
the
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Page 19
September 11th tragedy in that guidance. The EBITDA growth
continues to be driven by our strong subscriber revenue,
improvement in roaming, and improvements in productivity
across the business.
For Mobility cap-ex, Mohan told you that we're on track
against our target of $5 billion. And we'll be able to deploy
GSM GPRS in markets representing 40% of our POPs.
Before I wrap up, let me spend the last few minutes on net
income for the business, which is difficult to estimate
because of the volatility in our net equity earnings in other
income. But for the fourth quarter we expect our net equity
earnings, which include the financial impacts from our
investments and our partnership markets, affiliates, and
international holdings, to have greater losses--this is
typical in the wireless industry--other income, which is
primarily driven by interest income on the cash and cash
equivalent, and the market-to-market adjustment on the
warrants held by DoCoMo. Obviously, the interest income is
estimated based on our cash balances, which should be pretty
easy. The mark-to-market of the DoCoMo warrant is not easily
estimates since it's based on the stock price at the end of
the quarter.
Income taxes, as previously noted, we recorded a one time tax
benefit in the third quarter that arose from re-estimation of
our estimated annual tax rate. There may be additional
adjustments, both positive or negative, to our tax rate during
Q4. Our tax expense associated with income before income tax
is a net equity earnings from investment is currently
estimated to be approximately 50% for the entire year.
As a result, when you consider the lower EBITDA, exclude the
other income associated with the DoCoMo warrant, and exclude
the impact of the tax benefit in the third quarter, it is
probable that the EPS for the quarter will come in at levels
lower than this quarter.
Looking out to 2002, our 2002 planning efforts are well under
way, and we're pulling it together as we speak. As we build
our 2002 plan we have our eye on the current economic
condition, and at the same time remain optimistic about the
wireless industry and its growth prospects. We anticipate
laying out those guidance numbers, along with the AWE strategy
and an in-depth look at the
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Page 20
business at our yearly analyst meeting in New York, scheduled
some time in late-January.
Now I'd like to turn it over to Holly for questions and
answers.
H. Ash Again joining me for the Q & A are the folks you've already
heard from: John, Mohan, and Joe; as well as Greg Slemmins,
Lou Schakrin, and Michael Keith.
Moderator We have John Benchy on line with a question. Please state your
question.
J. Benchy Hi, John Benchy with Lehman Brothers.
A question that has to do with sort of the pre-marketing
profitability and the cash cost per user: It came in a tad
higher than we were estimating. As I look at the revenue
growth of 29.3% versus cost of service growth of 35.2%, I was
wondering if you could help us understand what's going on
there and how that's going to improve going forward.
J. McCabe John, just a couple of comments on it. As you said, our
cash cost per customer, pre-marketing, came in around $33
for the quarter. Part of that slight pickup is associated
with some additional costs that we incurred becoming a
stand-alone and separate company, and as we handed out
targets for 2002, we expect to continue to drive additional
productivity in our business across all functions, which
will keep us on the path to competitive margin.
Moderator We have Steven Yannes on line with a question.
S. Yannes Hi. Good quarter. At risk forfeiting my fundamental
question, I really need to know, do you guys have any idea
on the 90 million shares that AT & T Corp., what the status
is and what the plans are?
J. Zeglis Steven, not really. They're not sharing with us there.
S. Yannes As you get closer or involved in your technology migration,
can you give us any color to alleviate any concern on
network disruption? Have you learned anything? Have you
had any experiences in carving out the spectrum that can
ease concerns?
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G. Slemmins As you can imagine, it's an interesting process to
introduce this new, 2.5 G network in amongst an operating 2
G network, but we've been very careful about how we apply
spectrum and how we carve out spectrum that's currently in
use for our 2 G subscribers. John mentioned in he remarks,
as did Mohan, about our focus on quality of service and we
want to continue to improve the experience for our 2 G
customers, and in no way let this 2.5 G deployment have any
negative consequence to our existing base of second
generation customers. We're being very careful about, and
as far as we know there's been no impact.
Coordinator We have Cindy Motts on line with a question.
C. Motts Congratulations on a nice quarter, but even more so on some
of the actions you're taking with the churn, and also the
fixed wireless division.
Obviously, Mohan, you said churn was up. It looks like it's up
at a lot of carriers this quarter. And the recession, you
know, with the pre-paid, that's pretty logical I think. You've
been traditionally pretty conservative, and I know about the
involuntary churn. You were saying that it's still embedded in
your base, but given you had negative pre-paid nets this
quarter, which is pretty good, and you shut down the WUM, it
seems pretty clear, wouldn't you say, that the direction of
your churn--would you expect that to be down next quarter from
the 3.1%? I know it's hard to predict, but given the actions
you've taken, wouldn't you be surprised if it was up next
quarter?
Then, if you could clarify, what is the bad debt trending
at? How has the bad debt been going? Thanks.
M. Gyani Let me answer the two questions, and I'm sure Joe will
chime in and correct me. First of all, with respect to
churn, as I mentioned to you, we do have more embedded
churn in our customer base today than we'd like to see. It
is going to take a quarter or two to work its way through.
I'm hopeful that we will not see our churn go higher than
-------
what you saw this quarter. It's a hope I have. Obviously,
we are striving to try and bring this down.
Longer-term, I'm more comfortable that we will bring this
churn in line with the industry best. I have always said, in
the past as well, that I don't believe that churn in the
low-2% ranges that we saw
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Page 22
there for awhile on occasional quarters is sustainable for the
industry as a whole.
With respect to bad debt, clearly it is picking up. It is one
of the pressure points we have in the business. It is one of
the reasons why we are taking a hard look at our credit
policies, and making a cognizant decision of going after what
we perceive to be good customers.
C. Motts And that's probably a function, I would think, of the
economy as well.
M. Gyani Absolutely. No question about it. If you will recall, I
have been saying this for a while that this economy was
going to ...notwithstanding the events of September 11th,
which I think exacerbated it.
Coordinator Luis Cardajo on line with a question.
L. Cardajo Good morning, everybody. Congratulations. Good quarter.
I have a question on the pre-paid product. It would help a lot
if you could shed some light for the metric for pre-paid,
maybe CPGA, or some ideas where the ARPU is, or what the
percentage of your total base it is. This is becoming a much
more important element of the story and there is very limited
visibility. I'd like to see what else can we get.
J. Zeglis Louis, it's a very fair question, but as you know, we have not
been breaking out the details of any of our rate plans, and
will continue to hold to that. I know you'd like to know the
pre-paid details, but not today.
I know we said in the earlier comments, which is the pre-paid
is still low, single-digit percent of our base. In fact, it
dropped this quarter.
L. Cardajo My second question is probably much easier to answer. I just
would like to get your views on what are you first
impressions on the GPRS plans on the data usage? What are you
seeing--on a more qualitative basis? What kind of consumer
acceptance are you getting, and how is it doing?
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J. Zeglis Well, I guess we can all share around this, Luis, as I
think I've told some of your colleagues, bit speed, which I
repeated are that 40, 50 60 kilobits per second if you use
some compression software in your laptop with a card,
you're going to feel more like you're getting 100--double
the dial-up speed from your home. Anecdotally, when you
take a time port and cord it to your laptop and use it as
your transceiver for the data,, what we have had is some
anecdotal experience that people are sucking a lot of
packets through the Earth. It's very popular and the
buckets go real fast, so we'll be very attentive to that as
we fine tune the pricing structure and roll it out on a
broader scale in these new markets.
L. Cardajo Thank you very much.
Coordinator We have Harvey Lu on line with a question.
H. Lu Good morning. Great numbers.
Mohan, you talked about a distribution channel that was a
problem.... It sounds like it's targeting some of the things
that Sprint's doing with the ASL subscribers. Can you talk
about your experience again and maybe perhaps give us a feel
for what kind of customers these subscribers are?
M. Gyani Let me respond to that first. No, this was not targeting
the same type of customers that Sprint currently is through
their "service limiting program." It was a different type
of customer. These were customers that were going through
our credit policies and checking through it. I'm not at
liberty to talk about who it is or what it was, other than
to give you the comfort that we have shut it down.
H. Lu Are any of these subscribers still in your base, when you
said there is still embedded churn?
M Gyani Absolutely. That's exactly what I was referring to.
H. Lu So that's part of it as well as the existing pre-paid under
your old plans? ...have to go through?
M. Gyani That is correct. Yes.
Coordinator We have Paul Wahl on line with a question.
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P. Wahl Two really quick, short ones. Can you tell me if pre-paid
churn was in the double-digits? Can you give us a sense of
that?
And also, you said that people are using a lot of packets.
What kind of ARPU's are you seeing with it? I know it's pretty
early days, but are you thinking there are going to be a lot
of people with sticker shock out there?
M. Gyani Let me start with the question on the pre-paid, Paul. We
haven't broken it out, but I think if you backed into it,
you would not get double-digit churn for pre-paid.
P. Wahl And on the GPRS ARPU?
J. Zeglis A little too early, Paul. The Seattle launch was very
limited. I gave you the anecdotes, and we really are ...to
extrapolate that to thousands and tens of thousands of
users, which is where we're going to go now.
P. Wahl Thank you very much.
Coordinator We have Jeff Hines on line with a question.
J. Hines Jeff Hines, Deutschebank.
I know it's early on the GSM GPRS and the four markets out
West, but could you give us some more information on the type
of subscribers that are signing up for that service? Is it
existing AT&T Wireless subs who are going over for the data?
And if so, what are telling the subscribers who want to roam
about future plans for GSM GPRS?
M. Gyani I notice there's a lot of interest and curiosity on this
subject, and believe me, it is just way too early right now
for us to be able to give you any meaningful information or
trends. Limited launch in Seattle earlier on, we just
expanded now into a few other markets, and you know and we
know that the power of the network will grow exponentially
as the network gets built out. Realistically, from my
vantage-point, this is somewhere in the second half of next
year that you start seeing some real traction in terms of
customers coming on board.
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Page 25
J. Zeglis Jeff, we really ought to manage expectations. I'm the one
telling anecdotes here, and they just those--anecdotes. By
necessity, what we'll be doing is putting these phones in
the hands of people who have heavy local calling needs,
voice, and some data intense needs. As soon as we get the
gate phone, the TDMA GSM dual-mode phone, which we still
expect to be in the early part of next year, then we'll be
able to give some national voice packages that don't hurt
us so badly because we'll have our TDMA footprint for them
to roam on.
That's the plan anyway. We also will have some more GSM
roaming as soon as we finish our major GSM roaming contracts,
one of which is done and we'll be out with pretty soon.
J. Hines Great. Thank you. Nice job on the G & A reduction on the
quarter.
Coordinator We have Thomas Lee on line with a question.
T. Lee It's Tom Lee from JP Morgan.
I would actually like a commentary from you about the wireless
market in general, and your guess for what credit quality of
the incremental customers looks like in '02. Let's assume that
we exit a recession the second half.
And on top of that, just as it correlates, is it fair to kind
of forecast that, if you're pretty happy with this enhanced
pre-paid platform that as a percent of gross adds. Cause it
looks like maybe only double-digit percent of growth adds were
pre-paid in the quarter that you may actually start to see an
expanded percent of your growth adds through pre-paid in '02?
M. Gyani Why don't I start this off and others can chime in. Let's
take your last question. Can you expect to see our
enhanced pre-paid become a larger piece of our customer
base as we go forward. Let me reiterate: We like out
enhanced pre-paid program. We like it a lot better than
the old ones we had, and we think it gives our customers a
lot more functionality than the old ones had. Having said
that, I don't think we're out of the woods yet in terms of
knowing whether we have a winner on our hands or not. In
fact, as I said in my prepared remarks, "the jury is still
out." I'm going to keep watching this. And what you can
count on from us is just as
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Page 26
you've seen us do with other programs. If it doesn't make the
cut, we will shut it down. We're not going to keep chasing
bad customers, or customers that don't bring on positive MPV
for us.
So, too early to tell. We'll keep watching it. And the other
thing, of course, is we're going to keep it balanced. I know
we had a quarter a few quarters ago where people were
concerned we had so many pre-paid customers coming on, and
you've seen we've brought it back into balance. That's why
it's hard. And I would urge you all to the extent you can not
to interpolate the results of any one quarter into a
longer-term trend. We'll balance each quarter as we go
forward.
Credit quality of incremental customers: I think this is one
of the more challenging things for us as an industry. We have
tried our service limiting program out there, and we know
others are doing it. We have found it not to work the way we
would like to see it work. We shut it down. We'll wait and see
what happens with others who are trying it out there. But we
all know that if we're going to get to these 70% penetration
levels that we all project out there, between pre-paid and
something like that, as an industry, we're going to have to
figure out how to get there. Because otherwise we will run
into the credit challenged incremental customer, and I don't
know any other way to bring them on board right now.
T. Lee Thanks, guys.
Coordinator We have Todd Resmeyer on line with a question.
T. Resmeyer Good morning. If you meet your guidance for the fourth
quarter, which I have no doubt that you will, it looks like
for full year 2001 versus full year 2000 you'll have an
EBITDA margin improvement of almost 500 basis points.
Could you break out how much of that 500 basis points was
because of cost improvements in the cellular business
versus your PCS markets turning EBITDA positive? And could
we expect another 500 basis points in 2002?
J. McCabe Actually, if you've been following us, and I know you have,
we stopped breaking out the 850 market from the 1900
market. The prime reason for that is we don't run them
differently, and it becomes arbitrary on how we allocate
the cost between them. And so, this year we stopped
breaking it apart. So, you can just take a
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Page 27
look at our overall results and get a good idea of where the
margin improvements are coming.
As far as the improvement for the 2002, as I said, we'll give
you much better guidance come January. We still stand to the
earlier statements that we've made that out of our 850 market,
you could expect us to move to competitive benchmarks by the
end of 2002 and that over a period of time as the 1900 market
mature they should be basically at that same level. So, you'll
get much more detail come early January when we talk about the
2002.
M. Gyani Todd, I can't help but feel that our CFO put you up to this
question. I want to assure you we don't have the fourth
quarter in the bag at all. ....
Coordinator We have Charles Golden on line with a question.
C. Golden You mentioned the possibility of using the WCS spectrum that
was currently being used by the fixed wireless group for
potential mobility solutions in the future. I'm curious about
what your time frame is on that, and if you would also look at
unlocking the value in those licenses by selling those off to
another holder?
J. Zeglis Charles, a couple things: Number one, it's just in an
exploratory stage right now. We had this assigned
elsewhere. Now we're looking at it for other uses. Number
two, it may or may not be mobility. This may be the
youthful ...for some, especially down linked, heavy data
transport, but we don't know exactly yet. Thirdly, yes,
this is for sale. This is not strategic, given the heavy
spectrum portfolio we already have and the expectation that
we'll have access to that next wave spectrum when the
settlement is finally concluded. I don't want to mislead
anybody. This is only exploratory. Licenses to use the
air have turned out to be very valuable in this country and
in this industry. We're going to do just a little bit of
looking at whether or not it is useful for data transport,
mobile or otherwise, and we will entertain fair offers for
it if someone comes round.
Coordinator We have Michael Rollins on line with a question.
M. Rollins Good morning. Congratulations.
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I had a clarification and then a question. On John's question,
I think it was the first question on the jump in cost of
service, I was looking at that relative to a sequential
decline in G & A, and I was wondering if there was shift of
where the expenses were reported. And as for my question, I
was curious more on the distribution side. As industry growth
adds slow if you're seeing the attitude of indirect retailers
start to shift and try to focus on fewer carriers that they're
carrying in their stores, I'm just trying to get a little more
profitability for each carrier.
J. Zeglis Just to your first question, Michael, no we did not have
any shift in the expense within the income statement, but
the add on for the sequential change in cash cost per
customer, it really was in two other areas. It was in
higher network cost tied to the minutes of use of our
customers; and as Mohan talked about earlier, the bad debt
associated with our involuntary churn. So, no change in
"the display of our results."
M. Gyani Michael, good question on distribution. I think that's
exactly why we are so focused on making sure that we have a
balanced distribution mix out there that counts on not only
our own stores but national retail as well as dealer agents
and also our e-Commerce sites or direct mail sites. So,
we're trying to be very balanced in this.
I know there have been some recent stories out there about
...national retailers trying to narrow back the number of
carriers they're willing to carry. We intend to continue to
stay competitive. We don't intend to overpay relative to what
our other distribution challenge mixes might be. And sometimes
it's not just a matter of price; it's they also are looking at
who can best support their needs logistically. And that is
something that we at AT&T Wireless, we believe, we do very,
very well, which is the logistical support.
Coordinator Our last question comes from Kevin Rowe.
L. Geemay It's Lucas Geemay for Kevin Rowe. Good quarter, guys. I
just have a question on when you expect to see material
shipments of gate phones, and any ideas on positioning and
pricing of those at the moment?
J. Zeglis We're still saying early next year. First of all, we aren't
going
AT&T WIRELESS EARNINGS
CONFERENCE CALL
Host: Joan Brown
October 23, 2001/10:00 a.m. CDT
Page 29
to do price points ahead of their introduction. But these
aren't going to be radically different from the basic phone
and basic device choices that you could already have out
there in the marketplace.
Coordinator Ms. Ash, please go ahead.
H. Ash Thank you. At this point, I would like to add that in our
continuing effort to update everybody on our technology
path and progression, we will hold a conference call on
Tuesday, November 13th, with Rod Nelson, our CTO. Rod will
give a presentation on our technology strategy, and we will
open it up for Q & A afterwards. Further information
regarding this call will be released shortly.
You can access a replay of today's call on the Wireless Group
Investor Relations Web Site at att.com/wirelessir, or by
dialing the following numbers, starting at 7:00 p.m. ET today:
US/International phone number is 320-365-3844, and the access
code is 607778. As always, if you have additional questions or
you need further information, please feel free to call me or
the other members of the Investor Relations Team at
425-580-1652. Thank you.
Coordinator Ladies and gentlemen, this conference has now ended. You may
all disconnect.
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