Shenandoah Telecommunications Co ( SHEN) Call to discuss Amended Sprint Nextel Agreement February 6, 2012 11:00 a.m. ET Executives Adele Skolits - CFO, Vice President of Finance Christopher French – President and CEO Earle MacKenzie - EVP, COO Edward McKay - Vice President of Engineering and Planning Analysts Ric Prentiss - Raymond James Gregory Burns - Sidoti & Company, LLC Will Lauber – Sterling Capital Management Presentation Operator
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Shentel provides a detailed discussion of various risk factors in our SEC filings, which you’re strongly encouraged to review. You are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement.I’ll turn the call over to Chris now. Christopher French Thank you, Adele and good morning. I am excited to report that Shentel has continued to leverage our good relationship with Sprint, and we’ve reached an agreement to amend our contract and take another step forward with our affiliation. The amendment creates a win-win situation for both Sprint Nextel and Shentel and allows us to upgrade our network in accordance with Sprint’s Network Vision plans. As a result, we will be able to continue providing great service to our customers and our network will remain an important part of the Sprint’s high quality nation-wide network. I am sure that everyone on this call is familiar with Sprint’s network upgrade project referred to as Network Vision. So I won’t go into any detail about the network itself. I will begin my presentation on slide four. From our perspective, there are many benefits we will get from making this investment. These include: keeping our network aligned with Sprint’s to provide a seamless nationwide network for our customers; letting us remain competitive with Verizon and AT&T in our service area; improving customers’ experience through faster data speeds and better coverage; allowing us to initially launch LTE in the 1900 megahertz G block in parts of our network by the third quarter of 2012. The network will also make use of the 1800 megahertz spectrum that Sprint is harvesting from their iDEN network, giving us better in building and overall coverage. The Addendum gives Shentel the potential to leverage our investment in this new network to host other companies’ spectrum such as LightSquared. We will also be able to convert existing iDEN customers to our network.
The Addendum was signed on February 2 and was attached to our 8-K release that evening. We’re very pleased with the terms we’ve been able to reach.In addition to the benefits I’ve just highlighted, key contract points which are outlined on slide five are as follows. Shentel will use our best efforts to complete the upgrade by December 31, 2013. Initial 20-year term of our current affiliate contract has been extended to five additional years, now going out to November 2024. Additionally, our agreement retains the provisions for two 10-year extensions. Our current contract has limits on the level of capital expenditures that Sprint can require Shentel to make in our network. Those limits remain in effect. Continuing on slide six, Shentel will benefit from the migration of adding customers in our service area. Sprint will have a migration plan to move the postpaid and prepaid customers currently on the iDEN network, and we anticipate this will begin later this year and be completed by the end of 2013. There is no change to the 8% management fee we currently pay to Sprint, but the net service fee cap that’s currently 12% on net billed revenues will increase to 14% on July 1, 2013. That does not mean that the net service fee will necessarily increase to 14% on that date, but if an analysis of the balance of payments between Sprint and Shentel supports raising the rate, Sprint could increase the net service fee to 14% at that time. As was the case with the 12% cap, the 14% cap cannot be changed without the mutual consent of both parties. Retaining the cap for all the services that Sprint provides was an important contract term for Shentel as it gives us the ability to forecast our expected financial results with more accuracy. And finally, the contract continues to enable us to purchase network equipment and services from Alcatel Lucent at the same price they are sold to Sprint. Read the rest of this transcript for free on seekingalpha.com