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Regional operators improve financials, but long-term outlook remains mixed

U.S. Cellular Corp. released limited operating results for the second quarter, reporting a churn rate that ticked upward and net overall customer activations that were about half of what the carrier achieved during the same period last year-however, the company expects to boost its operating revenues significantly.

U.S. Cellular counted about 5.7 million customers at the end of the second quarter. The carrier said it expected to report quarterly operating revenue of between $835 million and $855 million-a substantial increase from the restated $742 million that the regional carrier registered for second-quarter of 2005. Operating income also is expected to see an increase, from about $67 million in the year-ago period to between $70 million and $90 million for the second quarter of 2006.

Postpaid churn increased from 1.4 percent last year to 1.5 percent this year; that figure held steady from the first quarter of 2006. The company gained 48,000 net customers overall, compared with about 94,000 net customer additions in the same period a year ago. That’s also a steep drop from the first quarter, when U.S. Cellular gained about 150,000 net customers.

U.S. Cellular and its parent company, Telephone and Data Systems Inc., are still catching up on quarterly and annual filings after a series of financial restatements that the companies began working on in November. The company has until Nov. 14 to catch up on the rest of its delayed 2006 quarterly reports.

Rural Cellular Corp.

Rural Cellular Corp. said it lost 7,385 customers during the second quarter, an improvement from the 9,992 customers the carrier lost during the second-quarter of 2005. Postpaid customers made up most of the loss, with Rural Cellular only showing a quarterly improvement in wholesale customer adds. Rural Cellular ended the first half of the year with 690,426 customers on its network compared with 716,755 subscribers last year.

Postpaid customer churn remained steady at 2.7 percent, while local service revenue per user climbed from $50 during the second-quarter ’05 to $53 this year, and acquisition cost per customer jumped from $520 to $578.

Despite the customer issues, Rural Cellular posted a 5-percent increase in revenues, from $133.4 million last year to $140.2 million this year. The growth was attributed to a 46-percent year-over-year increase in roaming revenues from $25.1 million last year to $36.7 million this year, which offset a decline in service and equipment revenues.

Net losses also increased from $19.6 million last year, a loss of $1.59 per share, to a loss of $29.7 million this year, a loss of $2.11 per share.

Dobson Communications

Dobson Communications Corp. continued to build on its momentum from the first quarter, turning in its second quarter of positive net customer additions in the last eight quarters-and although the company still landed in the red for the quarter, it continues to narrow its financial losses.

Dobson gained 17,300 net subscribers in the quarter, up from 2,500 net adds in the first quarter. The regional carrier ended the quarter with about 1.56 million customers, and more than 80 percent of them were on GSM calling plans. Almost 90 percent of Dobson’s postpaid customers are using GSM technology.

Dobson pulled back on its full-year guidance for customer additions and ARPU. The company indicated that it now expects gross subscriber additions to grow between 4 and 7 percent; earlier expectations were from 10 to 12 percent.

Dobson pushed its ARPU up from $45.28 in the year-ago period to $47.80, an increase of close to 6 percent. Still, Dobson had expected more, and lowered its ARPU guidance for the full-year 2006 to between $48 and $48.50. Losses totaled about $8.4 million (due mostly to a $12 million loss from extinguishing debt), compared to a net loss of $12 million in the second quarter of 2005. Roaming revenue was up $10 million to $71 million.

Bear Stearns analyst Phil Cusick said he expected to see “continued success of unlimited plan offerings, better marketing [and] more stores/distribution points driving the business. However, the company still faces tough competition, roaming rate declines, and some spectrum spending…in the advanced wireless service auctions.”

Centennial

Centennial Communications Corp. saw a 15-percent growth in revenue in its U.S. operations and a 13-percent growth in roaming revenue as a result of increased GSM traffic during its fourth fiscal quarter ending May 31. Centennial’s retail ARPU climbed from $51 during the fourth quarter last year to $55 this year; the carrier reported that almost $2 of ARPU was from data services.

Centennial posted quarterly income of about $3.4 million, up from a loss of about $13.6 million in the year-ago period.

Centennial added 9,400 customers in its domestic operations during the quarter, ending the fiscal year with 648,000 U.S. customers, including 51,000 wholesale subscribers. Comparatively, Centennial has nearly 740,000 subscribers in its Caribbean wireless operations.

Centennial noted that it had recently signed an agreement with Leap Wireless International Inc. to acquire 10 megahertz of spectrum in the 1.9 GHz band covering Fort Wayne, Ind., and that it is participating in the AWS auction.

Walt Disney Co.

The Walt Disney Co., which has launched two mobile virtual network operators in the past six months, made little mention of how well (or poorly) Mobile ESPN L.L.C. and Disney Mobile have done so far as the parent company reported its quarterly earnings. However, launch expenses for the two MVNOs contributed to increased costs at two of Disney’s divisions.

Disney reported that its cable networks operations grew, boosted by increased revenue from ESPN-but that ESPN’s own increased revenues were “partially offset by higher programming expenses … and increased costs associated with ESPN branded mobile-phone services.” In Disney’s broadcasting unit, operating income was down $70 million to $183 million for the quarter due to programming expenses, pilots and “costs associated with the launch of the Disney branded mobile-phone service,” the company noted. Costs were up 9 percent at the cable network operations and 11 percent in broadcasting.

Mobile ESPN launched in February and Disney Mobile began selling phones and service in June. Some analysts have already written off ESPN’s MVNO due to suspected poor uptake.

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