Welcome to the Shenandoah Telecommunications Second Quarter 2017 Earnings Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Adele Skolits, CFO. Please go ahead, ma'am..

Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the quarter ended June 30, 2017. Our results were announced in a press release distributed this morning, and the presentation we'll be reviewing is included on the Investor page of our website at www.shentel.com.

Please note that an audio replay of the call will be made available later today. The details are set forth in the press release announcing this call. With us on the call today are Christopher French, our President and Chief Executive Officer; and Earle MacKenzie, our Executive Vice President and Chief Operating Officer.

After our prepared remarks, we'll conduct a question-and-answer session. As always, let me refer you to Slide 2 of the presentation, which contains our safe harbor disclaimer and remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties.

These may cause our actual results to differ materially from the statements. Shentel provides a detailed discussion of various risk factors in our SEC filings, which you're strongly encouraged to review. You're 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. Also, in an effort to provide useful information to investors, we note on Slide 3 that our comments today include non-GAAP financial measures.

Details on these measures, including why we use them and reconciliations to the most comparable GAAP measures, are included in our SEC filings. These reconciliations are also provided in an appendix to today's slide presentation. I'll turn the call over to Chris now..

Thank you, Adele. We appreciate everyone joining us this morning. We're pleased with our continuing momentum and delivery of strong second quarter results. The period was characterized by revenue and adjusted OIBDA growth across all of our businesses and particularly so in wireless.

The migration of the former nTelos customers continues to progress ahead of schedule, and we expect the transition to be completed by the end of the third quarter. On Slide 5, you'll see that our second quarter net loss of $80,000 was a significant improvement as compared to the net loss of $7 million in the second quarter of 2016.

For the quarter, adjusted operating income before depreciation and amortization, or OIBDA, increased 24% to $69.4 million. Revenues were $153.3 million in the second quarter, a more than 17% increase from the prior year period. Revenues increased chiefly as a result of the nTelos acquisition and improved product mix.

Our Cable segment revenues improved as a result of higher average revenues per customers due to video rate increases and customers increasingly selecting higher speed data packages. Our Wireless highlights start on Slide 6. Postpaid customers are up 2.2% over the last 3 months, and prepaid customers increased by 1.3% over the same period.

For the second quarter 2017, Wireless adjusted OIBDA grew by 58 -- grew to $58.2 million or about 29%. During the quarter, we announced the expansion of our affiliate relationship with Sprint. The new agreement add service areas that will allow us to improve our customers' experience and significantly expands our footprint in the Mid-Atlantic region.

Turning to Slide 7. Our Cable segment also delivered solid growth in the quarter with continued demand for our high-speed Internet and voice services. Additionally, we implemented video rate increases in January 2017 to offset increases in programming costs.

Operating revenues increased 12% to $29.6 million, while Cable adjusted OIBDA grew over 35% to $9.9 million. Customer demand for higher bandwidth data services and growth in RGUs of 1.1% contributed to the revenue and OIBDA increases. As many of you know, we have complementary revenue streams, and Slide 8 profiles 2 additional assets.

Our fiber lease revenues increased 13% to $11.7 million. And 195 towers generated $1.8 million in OIBDA from lease revenue, up slightly compared to last year's second quarter.

In most of the markets in which we operate, we've led the charge to provide an improved customer experience by upgrading our network with the goal of becoming the provider with the most expansive coverage and reliable service. We believe our Triple Play offering is among the best available in our operating regions, both in terms of service and value.

We look forward to increasing our presence in the Mid-Atlantic region and believe the expansion of our affiliate agreement with Sprint positions us very well to capture more customers and market share. We recognize increasing reliance and expectations that consumers place on their telecommunications providers.

We've remained focus on growing our reputation as a provider of choice in markets we serve by ensuring that our products and services provide the coverage and reliability that our customers, new and old, have come to expect. We're pleased to have made good progress in the second quarter and look forward to the opportunities ahead.

As you know, during the quarter, we announced the intended retirement of Earle MacKenzie, our Chief Operating Officer. Earle has been with us since 2003 and has done a great job here at Shentel, including helping to ensure that a top-notch team is in place as we continue to build on our historic success.

We're currently working with Spencer Stuart on a comprehensive search, and we've been pleased with the level of interest in the position and with the quality of the candidates. Earle will be staying on until a successor is hired and for a period of time thereafter to ensure a smooth transition of responsibilities.

I'll now turn the call back to Adele to review the details of our financial results..

Thank you, Chris. I'll begin with Slide 10, which shows our changes in profitability. Our operating income increased by $14.5 million for Q2 '17 over Q2 '16. Over the same period, net income is up $6.9 million, and basic and fully diluted earnings per share have improved by $0.14.

The improvement in these profitability measures resulted from a drop in the cost of acquisition, integration and migration expenses of $17 million.

Also, revenues rose by $25 million between these 2 periods as a result of serving the incremental Sprint and nTelos customers in the acquired footprint for the full quarter of Q2 '17 in comparison to just 55 days in 2Q '16.

However, the growth of $14.8 million in depreciation and amortization and the incremental cost of $13 million to support the expanded network and customer base partially offset these positive changes. We've provided the next slide to assess how the underlying business is performing.

Slide 11 begins with the $14.5 million growth in operating income and then adjusts for certain noncash and nonroutine items. As you can see, for Q2 '16, adjusted OIBDA is up $13.5 million or 24% over Q2 '16.

We also provide continuing OIBDA to reflect the amount of adjusted OIBDA that company would generate without the benefit of Sprint's waiver of the management fees, and this measure is up $10.5 million or 21% for Q2 '17 over Q2 '16.

As a reminder, when we acquired nTelos, Sprint committed to waiving the 8% postpaid and 6% prepaid management fees up to $4.2 million a month until the total waive reaches $251.8 million. We provide the continuing OIBDA measure to ensure investors are aware that we will eventually reach this threshold and the waiver will end.

In addition, for the first 6 months after the May 6 closing date of the nTelos acquisition, we did not incur any management fees relative to the nTelos customers' billings prior to the customer being migrated to the Sprint's back office.

To better understand the factors driving the consolidated results, I've provided the second quarter OIBDA results by segment on Slide 12. Adjusted Wireless OIBDA has increased by $13.2 million or 29%, while Cable results have improved by $2.6 million or 36%. Wireline results have increased by over $300,000 or by 4%.

On Slide 13, I've analyzed the changes in the adjusted Wireless OIBDA results between Q2 '16 and Q2 '17. Postpaid revenues have grown by $14.8 million due to a 2% increase in the average number of those customers in Q2 '17 over Q2 '16.

Prepaid revenues have grown by $5.2 million as a result of the 6.7% increase in those average customers after excluding the impact of the reduction in the period an inactive customer was included in the customer rolls and which happened in 4Q '16.

The growth in the waive management fees I described earlier contributed $3.1 million to the growth in adjusted OIBDA. The amendment to the affiliate contract with Sprint effective January 1, 2016, specified that we separately receive or pay certain revenues and expenses that were previously included in the postpaid net service fee.

As a result, we began receiving travel revenues, which grew by $1.1 million in the second quarter of 2017. Other and postpaid costs -- postpaid acquisition costs, rather, dropped by $0.6 million. The cost to support prepaid customers grew by $0.8 million, and prepaid acquisition costs grew by $1.8 million.

Network costs increased by $9 million as a result of supporting the additional acquired cell sites for the full quarter of 2017 and expanding the number of cell sites since 2Q '16 to improve coverage in the acquired area. On Slide 14, I've shown the components of changes to adjusted Cable segment OIBDA.

The positive changes include significant growth in high-speed data revenues of $1.5 million as a result of a 6-point -- 6% increase in average high-speed data or HSD customers. Also, the HSD customers are choosing higher speeds that carry higher service charges.

Another favorable improvement in revenues was the decline of $1 million in promotional credits and discounts. Voice equipment and other revenues grew by $900,000 as a result of the growth in customers, primarily as a result of the 5% increase in average voice customers.

Selling, general and administrative costs have increased by $200,000, while network and other cost of goods and services sold have increased by $400,000 to support the additional customers. At this time, I'll turn the call over to Earle to go into greater depth on some of the operating factors driving our results..

Thank you, Adele. Good morning, everyone. I'll begin on Slide 16. We ended the second quarter with 732,644 postpaid subscribers and 246,800 prepaid subs, which included the 18,964 postpaid and 5,962 prepaid subs obtained from Sprint on April 6 as part of our agreement to expand our affiliate area by approximately 500,000 POPs.

Upgrades in the quarter were 6.8%, excluding migrations, with 53% leasing, 38% using installment sales and 9% remaining on phone subsidy plans. Slide 17 shows an exciting trend in our new service area. You see that we had over 40,000 gross adds in Q2. 46% leased their phones. 41% selected installment sales. And 13% subsidized phone plan.

Although the legacy area grew gross adds by 8% from last year, our new service area produced over 55% of total gross adds. This is very promising since we have yet to complete the upgrade to the network and have not done any significant local advertising.

We had a net loss of 3,000 postpaid customers in the quarter, with the legacy area adding 2,845 net adds with a net decrease of 637 tablets and data devices. So phone adds were 122% of net adds.

Of the almost 6,000 net losses in the new area, 8,129 of them were nTelos customers that didn't choose to migrate, leaving 1,834 net gain to the Sprint back office. The total number of tablets and data devices on the network decreased by 1,777 during Q2.

With unlimited being reintroduced by the big carriers, supporting ratio of Q2 in the legacy areas slipped to 1.3:1, with it back up to 1.6:1 in June. In the new area, the porting ratio was 0.65:1, but rebounded to approximately 1:1 in June. Moving to Slide 18.

The combined postpaid churn and the legacy area churn didn't change substantially from the first quarter. We've not adjusted our churn for certain early life adds or disconnects as Sprint did in the current quarter. If we omit the churn caused by the nTelos customers that did not migrate in the quarter, the combined churn drops from 2% to 1.7%.

Going back to the first quarter, if we admit the churn caused by the nonmigrating nTelos customers, combined churn rate would be 1.8%. We are very pleased with the combined churn at this level, considering we are still disrupting the customers in the new area finishing up our network upgrade.

As of July 31, we still had about 20,000 nTelos customers to migrate to the Sprint back office. We expect churn to spike in the third quarter as we complete the migration as of September 30 and turned down nTelos back-office systems a full quarter ahead of our original target date.

We're making every effort to migrate as many nTelos customers as possible. It won't be 100%, but at this point, we don't have an estimate of how many of the remaining customers will not migrate. On the right side of Slide 18, we've chosen to show build revenue differently than we have in the past.

The numbers for the second quarter and previous quarters are gross build revenue less discounts and credits. We made the change since the amount of discounts is becoming significant. There are many different discounts, but ones related to equipment that are netted against service revenue are the largest and do have a significant impact on net revenue.

As we discussed last quarter, the reduction in service revenue per sub has slowed and is primarily impacted by the continued drop in subsidized service plans, which now represents 33% of the base. Prepaid stats including Assurance customers are shown on Slide 19. We continue to add primarily Boost customers. In the quarter, we had a net loss of 2,700.

But Sprint deactivated approximately 4,300 Assurance subs that didn't meet the criteria for recertification. You see on the right side of the slide that we had a net gain in prepaid subs in Q2. The reason is the approximately 5,900 subs obtained from Sprint on April 6. Slide 20 shows an increase in prepaid churn in Q2.

If we omit the 4,300 Assurance customers, the combined churn drops to 4.9%. On the right side of the slide is the average build revenue per sub. As you recall, the big jump in Q1 was due to the change in the way Sprint counted prepaid subs as of year-end 2016 and a true-up from Sprint.

Slight 21 shows the continued progress in the upgrade and expansion of the nTelos network. We will have the upgrade from 3G to 4G LTE completed by September 30, a full quarter ahead of schedule. The staff has done an outstanding job beating the time line and staying on budget.

We will have 60% of the new coverage completed by year-end and the remainder done in 2018. With the customer migration and network being completed by September 30, we're gearing up for a big fourth quarter. Slide 22 shows the transformation that has happened to the distribution channels in the former nTelos areas open the past 15 months.

We've rightsized our distribution and have more points of distribution than any of our competitors. We have taken the number of company-owned locations from 41 to 31. We've closed some and moved others to agents. We have a very strong group of agents.

We've increased the number of agent locations from 55 to 69 and plan to add an additional 10 locations by year-end. As we have discussed many times, we've always focused on the Boost prepaid brand. We're aggressively opening third-party Boost locations with 120 today and an additional 19 planned before year-end.

To date, we've done very limited local advertising in former nTelos area, primarily brand advertising and ads directed at former nTelos customers to come into the stores to migrate to Sprint. All of that changes right after Labor Day. We plan to spend approximately $2 million in the last 4 months of 2017, touting our great network and price advantage.

Needless to say, we're very excited to be moving from the upgrading migration and transformation stage in the nTelos area to being fully on the Affiliate model and aggressively selling Sprint services. Moving to Cable on Slide 23.

We continue the prior trend of increasing high-speed Internet and voice customers and the loss of video customers for a net loss in the quarter of 559 RGUs. We added 132 high-speed Internet customers in the quarter in spite of the seasonal loss of our college students in Q2. We added 445 voice RGUs and lost 1,136 video subs.

We continue to add starter video subs, our most basic package, with primarily the broadcast channels and are losing advanced and ultimate customers. The starter customers are bundling a larger broadband service, and we expect getting most of their programming over the top.

The continuing increase in average revenue per service and per customer is shown on Slide 24. No changes in the reasons. The increase is driven by our higher -- our high-speed Internet customers selecting and upgrading to higher-speed packages and an annual video increase to pass on the increase in programming costs.

Slide 25 shows in the past year an almost 2% decrease in video subs and a 2% increase in high-speed Internet customers, which has resulted in a significant increase in the profitability that Adele spoke of earlier. Moving to the Wireline segment on Slide 26.

We continue to have access line losses higher than our traditional pace, due to the elimination of the requirement as a high -- to have a voice line to get high-speed Internet. We've increased our broadband customers by 3.5%, with the growth happening in the higher-speed Cable modem options.

The increase in broadband service revenue continues to offset the loss in voice service revenue. Fiber shift sales are shown on Slide 27. Total fiber revenue is up over 13% in the past year, with growth in both affiliated and nonaffiliated revenue.

The increase in affiliated revenue is due primarily to replacing third parties with our own fiber-to-the-tower. New third-party fiber contracts are down from the same period last year, but we have a robust funnel and expect 2017 to exceed 2016 in total new contract values.

The CapEx chart on Slide 28 has not changed from the first quarter, with the exception of an additional $3 million in the Wireless segment related to the newly acquired expansion area. We still believe this actually reflects our expected capital expenditures for 2017. If necessary, we'll provide an update with our third quarter earnings call.

Overall, our operations are running on all cylinders, and we're optimistic about the current trends. I'll now turn the call back to Adele..

This concludes our prepared remarks.

Terrence, would you now review the instructions for posing a question?.

[Operator Instructions]. We will go to Rick Prentiss from Raymond James..

First, a couple of questions on the quarter numbers for Earle and then maybe some strategic questions. Earle, appreciate the color on the porting ratios in the legacy market, 1.3 for the quarter, but 1.6 in June.

Sprint in their call earlier this week went so far as to get pretty excited about some changes they saw in July, given that the unlimited offers by AT&T and Verizon did have some muted effect in 1Q, 2Q.

Can you give us any color as far as are you seeing something as similar to what Sprint got excited about in July?.

We are. We probably will have our best July ever. We are having a very good July, or did have a very good July. We're now in August. It's past tense now. We did have a good July..

Okay. And Sprint also talked about, there has been some concern in the marketplace about the free offer. Sprint talked about that. It was a very -- it was a trial. It was really online-only, bring-your-own-device. And I think he said less than 1% of gross adds.

What did you guys see as far as the impact both in the month of June and in July from that BYOD free offer..

It was negligible, not even 1% of our gross adds..

Great. And one other housekeeping question. On the prepaid for the quarter, you mentioned how you had the 4,300 life line Assurance customers that came on.

Was that included in the negative 2.7 prepaid adds in the quarter?.

Yes..

Okay.

So absent that, you guys would have actually added like 1,600?.

Yes, that's true. We have not made the change that Sprint announced this week of dropping the Assurance customers from account. We will do that next quarter. But it just was too late in the quarter for us to make that adjustment prior to this call. But we would have had a positive quarter without that change in the Assurance customers..

Okay. Sprint, obviously, excluded that from any effect on net adds. They just took it out. Can you give us just a view of how many Assurance customers are left that you'll be taking out. And I assume the revenue is fairly negligible, so not much change..

Gosh, I'm going to be -- I don't have it on the top of my head. It's tens of thousands, but it's a pretty insignificant number out of the 280,000 customers..

Okay. But again, fairly minimal revenue, so not much revenue impact probably..

Well, the revenue will still be there. We'll be showing it in the -- if we're consistent with Sprint, we'll be showing it in the wholesale line rather than in the prepaid. But the impact on the bottom line will be 0. It will show as increase in average ARPU, because we'll take out those low revenue customers..

Okay. And then more strategically, obviously, it seems rumor du jour of who Sprint or Softbank are talking to.

Maybe just lay out for us, one, not your opinion on those different rumors, but what would be the effect to Shenandoah if Sprint were to merge and consolidate with T-Mobile? What would be the effect at Shen if Sprint and Softbank were to do something to do with Charter? What would be -- as illustrative, what would be the effect if Sprint were to do something with Dish? So just trying to think through your kind of on the tail end there, but how would you be affected by those different strategic things that might be happening at Sprint?.

Let me -- I'll take them kind of in reverse order, because it's simpler in the reverse order. If they merge -- if we're able to merge with Dish, basically we would get access to that additional spectrum. And if there was some way that they were sharing the Dish content online, we get that same opportunity too.

So the impact on us would be relatively minimal, but in my opinion, all positive, if a Dish merger. The same thing really with Charter. They have no network. So we would continue to be an affiliate on the wireless side. And to our advantage, we have very little Charter cable in our footprint.

And so really we would be actually additive to that, because we do have cable customers. And if there were some way that they did a quad-play, we could take advantage of that. So in my opinion, that would be a positive. On T-Mobile, we also believe that would be a positive, but the situation would be a little bit different.

There is -- in our contract and it is -- we filed that with the SEC. So it's out there if anyone would like to look at it. But briefly, there is a waterfall of events that happen in the event that they merge with T-Mobile. First, we agree not to file an injunction to try to stop the merger.

Second, T-Mobile, within 60 days of the closing of the transaction, T-Sprint would have the option to buy our wireless business using the same formula that's in the contract at -- in for 2029, which basically is, we get valued at full value assuming we own the spectrum and the brand to investment bankers using a discounted cash flow model.

If they are within 5% -- 10% of each other, we split the difference. If they are greater than that, we get a third bank involved. But ultimately, we get paid 90% of that amount, because we don't own the spectrum and brand.

Our opinion is that there is a very low probability that T-Sprint would want to do that, because neither Sprint nor T-Mobile have a great rule strategy. In the event that they do not buy us, then it flips the other way.

We have the option to purchase all the T-Mobile customers and network in our footprint at $0.75 on the dollar of the value of the merger. So using as an example, assuming that customers were valued at $1,000 a piece, we could buy all the T-Mobile customers and network in our footprint at $750 a piece, immediately accretive to our shareholders.

In the event that we can't finance it, T-Sprint would finance it for 5 years at their cost of money. And in the event that we decided we didn't want to buy the networking customers, T-Sprint would have to turn off the competing network within 2 years. So we feel very good about our long-term prospects under any one of the scenarios that you laid out..

That's good. It helped to clarify, because obviously there's been a lot of bouncing around out there. And appreciate the update on July and looking forward to you guys ramping up marking in the new area in September..

No more than we are..

And our next question comes from Barry Sine from Drexel..

Wondering if you could walk us through what we should expect over the September and the fourth quarter time and kind of wrap it together. You've given a lot of data points. The integration is complete. The former nTelos stores are starting to sell. You are going to do $2 million in advertising.

At the same time, we've got, I think, 20,000 subscribers still to migrate. I'm not sure if you've spoken on all those and going to be writing some of those off.

What -- how should investors think about what's going to go on over the rest of this year and what the outcome would be?.

Well, for the next two months for August and September, we're still focused primarily on migration. So we have contacted all of those 20,000 customers every possible way we can. They're really the ones who are procrastinating.

So we expect that there probably will be a flurry of activity towards the last half of September, because we've made it very clear to all of those customers that we've planned to turn off the nTelos back office. Therefore, their phone will not work after September 30. So that's really the focus.

We're going to start advertising after Labor Day, because it does always takes a lead/lag before people hearing the ad the first time before they start -- to actively start to work. So we will be advertising for a couple of weeks with the anticipation that really sales will start to pick up at that point in time.

But the real selling will happen in the fourth quarter, which coincidently will be a positive for us because of the new iPhone. We think we'll be a net winner with the changes that will happen if customers look to move their service after the iPhone comes out.

The network construction is nearing completion and the month of September will primarily be used for optimization, which is incredibly important. Every time you make a change in any cell site, it kind of throws off the balance of the network and you have to rebalance it.

And so really you don't get the full benefit of the 4G update -- upgrade until the construction is done and you are able to really optimize that network. I think what you'll see is a lot of churn in the third quarter, because there will be thousands of customers who ultimately don't move over.

I really don't have a good idea of what that number will be. We will work very, very hard to make that number as small as possible, but we're realistic. We saw the bump last year in December when we turned off the prepaid. And so to anticipate the same thing on the postpaid, I think, is wise on our part.

We're still on track to basically add the number -- or move the number of customers we expected to move. So we're pleased with that.

But third quarter will continue to be a little bit messy as we're trying to close down everything and get all those customers moved over with really the anticipation of fourth quarter being, I guess, the new business as usual with the sales ramping in the quarter.

And June was -- June and July have been particularly positive for us, because we have seen a significant increase in traffic in the nTelos area stores, both our dealer stores and our company stores. So I think we are optimistic about the prospects there.

We are starting to see -- very honestly, we're honestly starting to see a couple of T-Mobile stores open up in that area as they start to build down Interstate 81, but their network is significantly smaller than anybody else's. So we don't see them as being any kind of a significant impact on the marketplace at least for the near term..

Okay. And then part of what you're doing one of the slides you talked about the -- you gave an update on the store count. And I thought it would be interesting, the reduction in the company-owned stores, if you could get through the philosophy there.

Are agent stores better positioned, or those just true overlap stores, what's going on with that reduction?.

Well, as you remember, we picked up 7 Sprint stores as part of the deal. So included in that 41 were 7 Sprint stores. In virtually every case, the Sprint store was almost across the street from an nTelos store. So it really made no sense for us to keep those stores -- both of those stores open. So those were the stores that we looked to close.

The other thing is, you have to remember, nTelos sold both prepaid and postpaid out of the same stores. So as we have evaluated the patterns in some of the stores, some of the nTelos stores really were primarily prepaid stores. And so those stores are the ones that we've moved to an agent and made a Boost store.

So what we've tried to do is be smart about where our customers want to buy to make sure that we have good distribution of both postpaid and prepaid stores and so it just made sense for us to end up with a fewer company stores.

We'll continue to look and I would expect that if we -- when we look at 2018 and being, we'll continue to open some company stores as we see areas that we think there is the demand for a company-owned store. But we have a very strong agents. The truth is the quality of the sale that goes through exactly the same training that our employees go through.

So I would say that in most cases, it would be very difficult for a customer to know that they were walking into an agent store versus a company store, except there are some functions that we do in the company store that they can't do in the agent store, such as be able to make adjustments on their bill, et cetera.

But as far as the sales experience, it's very, very consistent between all of our distribution..

Okay. And then the newly acquired markets that you picked up in April, you've given some rough data points there. Could you flush out -- do you have understanding of what you need to do network-wise? It sounds like there is a pretty significant number of cell sites that are going to have to go to one of those markets.

I know you have a 3-year commitment for capital spending with that. I'm assuming that would be front-end loaded. And then I'm assuming you also need to make an investment in retail store footprint towards the latter end of the network upgrades..

That is true. As you saw, we added $3 million to our budget this year, which is pretty small amount. But you always have to do planning before you can run. '18 and '19 will be big years for us as far as construction. We will be building probably 75 to 80 cell sites either upgrading or building 75 to 80 cell sites.

And what we've made the decision is that there really isn't -- little point -- there are a couple of agent stores in that geography, but it doesn't make really any sense for us to open company stores until we have a network that's competitive.

And so as we're looking at our time line now and obviously things are a little fluid in that area, we see that time frame being kind of mid-2019. And so at that point in time, we'll open probably somewhere around 4 to 6 stores -- company stores in that footprint and then significantly increase the number of agent stores and be prepared to sell.

So we're somewhat treading water for the next 18 to 24 months as we are significantly improving that network. And then once it's improved, we'll start spending the advertising and open distribution..

Okay. And then turning on over to the Cable side of the business, you talked to a little bit about outcomes if -- one of the potential outcomes would be Sprint combining with the Cable company. In that eventuality, assuming you've got more flexibility to integrate what you're doing with cable with your wireless.

I know you're already pretty well integrated from a network standpoint and you're reaping those synergies.

But from a marketing standpoint, if hypothetically, you were able to have the same brand across the footprint and offer a quad-play, do you view that as a significant potential revenue opportunity? Or do you think the customers just are not at all interested in the quad-play?.

My first opinion is we haven't seen a tremendous surge in that. Maybe it will become more so as the big cable companies start to market the wireless. But in many for areas, our customers already know that we're both Sprint and Shentel. And it really has not -- we don't see that as a huge opportunity.

There potentially could be some more operational efficiencies if you could send 1 bill versus 2 bills. If we could have 1 store versus two stores. But I'm not sure that we would see a huge surge in revenues from a quad-play. To me, it also adds some risk.

Not that we ever want to upset one of our customers, but today, if I upset a customer on the wireless side or on the cable side, I'm probably going to keep the other side of the revenue. If upset the customer going forward with the quad-play, I can lose it all. So there is some risk to that..

And then my last question continuing in the Cable part of the business. Could you give us an outlook in terms of upcoming programming contracts you have come up to expire. And I know that typically, programmers requested pretty significant increases and your philosophy has been to hold the line.

And you've even given up some of the programming in those negotiations.

Could you just give us an outlook, is there any significant coming up over the next 6 to 12 months?.

Well, the most significant thing in the next 6 months would be retransmission. That's the fees that we pay the local broadcasters to be able to carry the local broadcast channels. Those fees have been going up at a very high rate.

And we continue to believe that there will be significant higher ask from the broadcast channels for us to continue to carry them. Now in most cases now on the big 4 channels, we're paying anywhere from 2 to 2.50 channel per month, or our customers are paying that much. And I expect that many of those will go over $3 a channel.

Putting them not at the ESPN level, but certainly probably the most -- certainly the most expensive channels we have. Unfortunately, we don't have the option of picking and choosing. A customer doesn't have an option of picking and choosing. We either have to carry the ABC channel or we don't carry the ABC channel.

We'll do everything we can to keep those rates low. But that will be a significant increase. The biggest cable programming contract come up is MBCU, and that comes up next year. We expect that will be a fairly significant increase. We do have Viacom coming up for renewal in -- at the end of 2018.

At this point in time, we are strongly considering dropping those channels. And there really are 2 benefits for us for dropping the channel. First of all, we can reduce the customers' bill. And in many cases, they can get that programming over the top if they want a particular channel.

That's the part that's being pretty aggravating from a cable programmer standpoint is I'm being charged for a channel where the customer can go direct and buy them at the same price and sometimes a better deal. And second, if we are not -- if we're carrying fewer video channels, we have more capacity for broadband.

And that really is, as you've seen over the last couple of years, is where we are profitable. So we continue to watch carefully the over-the-top, especially some of the linear programming over-the-top from Sony and Direct and some of the others. And I can see a time in the future, Barry, where we don't offer a linear plan.

We just refer the customer to one of those linear over-the-top options and sell them a bigger broadband pipe. And from our standpoint, that would be a much more profitable business and a much simpler business than the video business is today..

And our next question comes from Hamed Khorsand from BWS Financial..

So just want to understand what the amortizing Boost that you're trying to do in the last four months of the year.

ARPU is declining? And what are you expecting as far as these wireless subs that eventually come onboard? Where do you think this ARPU level would be?.

Hameed, this is Earle. What we're really seeing -- the decrease that we are seeing today is because customers are coming off of the subsidized phone plan. So they were paying $80 including the phone. And now that the phone is being charged separately, they are going to the Unlimited Freedom plan, which starts off the first phone at $50.

So we're going to continue to see -- even if we added no customers, just the existing customer base, continuing to move towards leasing and buying the phone on installment sales, we're going to see that continue to happen. But I think the important thing to remember is the corresponding drop in the cost of goods sold.

If you look at our OIBDA margins, we've been able to keep our OIBDA margins strong, because you've seen year-over-year a significant drop in the corresponding cost of goods sold since we're not giving away the phone. So although ARPU has come down, we've been able to keep the margins.

If I look at the incremental customers that are coming on, about 75% of our customers are buying the Unlimited Freedom plan. And on average, we're getting 2 to 2.2 lines per customer. So when you do the math, the average revenue of the customer coming on looks very similar to what we currently have..

Okay.

And the advertising also includes the new extended area you just acquired from Sprint?.

No. The $2 million is only really being directed at the former nTelos footprint. We're not spending any money in the newly acquired area. We don't really have a network that's ready for prime time..

Okay.

And then as far as your broadband customers are concerned, how much of that -- of the total subscribers are now your top-tier level?.

Less than 1% of our customers take 100 meg. Our most popular speeds are still 5 and 10 meg..

And that's well over 70% of our customer base there..

So I mean, there's still....

Tremendous amount of upside. What we're seeing is we're seeing anywhere from 750 to 1,000 customers a month are calling and upgrading their speed.

So that's the reason why we're continuing to see such strong growth in our broadband revenue without much exceeding the growth that we've had in actual customers, because existing customers are constantly being upgraded.

And one of the things that we do on a regular basis is that if a customer calls in and has an issue about speed, what we normally find is that they have been a customer with us for several years and what has happened in that period of time is that their children have gotten older and the number of connected devices in their house has exploded.

And so when they were on, pick a number, 10 meg, 3 years ago and were getting a great experience, today, they're not getting the same great experience. What our customer service and tech support group has the authority to do is they have the authority to give that customer 2 months of higher -- of a 2 speed higher rate.

So if they are 10 meg, we take them up to 25 meg for 2 months at the 10 meg rate and basically tell them, if you're happy with the speed -- the new speed, you don't have to do anything, starting in 2 months, you'll pay the higher price. If you want to go back on the 10 meg price, give us a call. The truth is virtually nobody calls us.

Once they get used to that higher speed, they keep it. And so what we're seeing is a constant upgrading of our customer base.

And so today, the bubble is at 10 meg, but we expect that bubble will be at 15 megs, 25 megs and higher as time progresses and the demand, especially driven by data, continues to do 2 things, data and the number of connected devices..

Okay. And Adele, I know you provided the integration expense.

How much was the temporary back-office expense?.

Temporary back-office in the second quarter was $3.1 million, and that's actually given on the slide. We added back separately when we calculated adjusted OIBDA. Actually $1.7 million, and it's on Slide 11..

Okay, understood. Okay.

And that will obviously go away this quarter, in September?.

Yes, it will go away in the fourth quarter. There could very well be some limited continued shutdown costs as we shut down the overlapping area, which could bleed into the fourth quarter, but it will be all done in the third quarter..

And our next question comes from Amy Yong from Macquarie..

Earle, congratulations, and we're sorry to see you go. I guess, just sticking with churn, I know last time, I think the expectations are there are roughly 30,000 subscribers the last time you got migrated. I know it's hard to judge how many additional subs need to be migrated in 3Q.

But I was just wondering if you could frame that relative to the 3,000 number? And as we think about 4Q, is the 1.7 number kind of the more -- the new normal that we should be thinking about.

And I guess, how does the iPhone 8 launch impact churn for 4Q? And then my second question is on the prepaid side, given Sprint's rebranding of Boost and also Virgin, just wondering how that impacted the quarter and perhaps Virgin later on in 2Q?.

That's a lot of questions in two questions. So I probably will miss some of them. As far as migration of the remaining 20,000 customers, these are the customers -- what's interesting is that they have -- a very high percentage of those customers have flip phones. They are not smartphone users.

These are really customers who have had their phone for a long period of time, who are happy with it primarily as a voice device and are on an old price plan from nTelos. We're optimistic that ultimately, they will come over, but they have been reluctant to do so.

And I think some of them probably have not clearly understood that we're going to allow them to stay on their old price point if they want to. That always seems to be the thing that people are kind of somewhat surprised about when they walk in, oh, you're going to let me stay on my same price plan.

So we think that people -- some people are waiting till the end, just because they think they will be advantaged by staying on the old price plan. So I wish I had a good answer for exactly how many of those. I can tell you that we have dedicated a lot of resources to moving those customers over.

it's one of our primary objectives as a management team for this year is to maximize the migration. But we do expect that there will be a bubble at the end of customers that we can't get to move over. On an ongoing churn, I would say that the 1.7 is a very conservative view of where we will be going forward. I think that it might take a quarter or 2.

But we should see the nTelos area move -- churn move to where we are in the legacy area. There will be obviously some time to get that there, but I don't think it's a year. I think it's just a couple of quarters. So I think the 1.7 is conservative, and we should see churn inching down from there.

As far as the iPhone, the new iPhone, we do have a fairly significant number of iPhone 5s and 6s in the network. And I think those are the ones that are probably most likely to want to upgrade. I look at from a -- and obviously, I'm biased.

But when I look at it from a customers' point of view, if they can get a new phone and Sprint's always been very competitive on how they price the new phone, if they can get a new phone and stay on a great network, our network, and pay a lower price than they would with an AT&T or Verizon, I think we are in a very good position on the -- any churn that happens from any carrier as a result of the new iPhone.

So I think that we should keep a very high percentage of our customers, and I think we've got a good shot of picking up customers from both Verizon and AT&T. Time will tell. But historically, we have not been a loser in our legacy area anytime a new significantly improved iPhone has come out.

We've actually always been winner and picked up customers there. On the prepaid side -- tell me if I've missed a question. On the prepaid side, they have revitalized the Virgin Mobile. It happened during the quarter. We haven't really seen a big impact on that. Once again, it's kind of an interesting approach in that it's for iPhone users only.

It's primarily over the web. You can get it in an iPhone store. We just don't have a lot of iPhone stores in our footprint. So I just don't know how impactful that will be. I think we're going to continue to put a tremendous amount of effort, as we have in the past, on the Boost brand.

We've continued to see that as a very popular brand and to the point now where the vast majority of our prepaid customers are Boost customers. And that continues every month.

Every month, we tend to -- in the turnover of our prepaid customers, we end up every month with more Boost customers than we had the month before and fewer Virgin Mobile and Assurance customers.

And since we'll make the change next quarter, what you'll see in our prepaid numbers going forward, we'll exclude the Assurance customers and we'll only have the Boost and Virgin Mobile..

And at this time, I'm showing no further questions. I would like to turn the call back to Ms. Adele Skolits for any closing remarks..

Thanks, everyone, for participating. Please let me know if there are any additional details you'd like to see in future calls. My contact information was provided in the press release. We expect the 10-Q to be released later today.

Also just a reminder, I'll be participating in the Oppenheimer Technology Internet and Communications Conference on Tuesday in Boston and look forward to seeing some of you there. Thank you..

Again, ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect..