ALSK

Alaska Communications Systems Group, Inc. (ALSK)

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Alaska Communications Systems Group, Inc. (ALSK)

Q3 2008 Earnings Call Transcript

October 30, 2008, 5:00 pm ET

Executives

Melissa Fouts -- Director, Internal Reporting

Liane Pelletier -- Chairman, President and CEO

David Wilson -- SVP, Treasurer and CFO

Analysts

David Barden – Banc of America Securities

Jason Frazier – Raymond James

Dave Coleman – RBC Capital Markets

Presentation

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Alaska Communications Systems Third Quarter 2008 Conference Call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator instructions)

This conference call is being recorded today Thursday, October 30th of 2008. I would now like to turn the conference over to Melissa Fouts with Alaska Communications Systems. Please go ahead ma’am.

Melissa Fouts

Good afternoon and welcome to the Alaska Communications Systems third quarter 2008 conference call. With me today are Liane Pelletier, President, Chief Executive Officer, and Chairman of ACS, David Wilson, Chief Financial Officer, Anand Vadapalli, Senior Vice President for Network and Information Technology, and Leonard Steinberg, General Counsel.

During this call, company participants will make forward-looking statements as defined under U.S. Securities Laws. Forward-looking statements are statements that are not historical facts and may include financial projections, estimates of shareholder returns, or other descriptions of the company’s plans, objectives, expectations, or intentions. You are cautioned not to put undue reliance on forward-looking statements as actual results could differ materially from expectations as a result of a variety of factors, many of which are outside the company’s control. We discuss these factors in our SEC filings.

Lastly, any non-GAAP measurements referred to during this call have been reconciled to their nearest GAAP measure. You may find these reconciliations in today’s press release and our SEC filings on our investor website at www.alsk.com. We will begin the call with Liane discussing the Alaskan economy and our enterprising wireless businesses. Then, David will review the details of our operating and financial performance and will discuss the company’s position vis-a-vis the capital markets. Liane, will then open the call for questions.

With that, I would like to turn the call over to Liane. Liane?

Liane Pelletier

Thank you, Melissa. Welcome and thank you all for participating today. It’s an understatement to say that financial markets and many economies around the world have been hit hard with our second quarter earnings call but Alaska had been somewhat sheltered and should weather the impacts better than most states. For example in housing, Alaska lenders did not proudly participate in subprime lending practices and their current housing market logistics indicates a stable outlook with single-family home medium prices up slightly from the prior year and the annual foreclosure rate of less than 1%, the second lowest in the nation.

In the private sector, oil and gas dominates all other industries and contribute to full third of the state growth products. Even though the price of oil had recently dropped, it remains at historic high and investment continues to grow. With energy independence and diversification on the national agenda, decision makers understand that Alaska can play a part in delivering on that policy. And as discussed in our prior calls, significant start up efforts are under way in Alaska that will hopefully concluded the construction of a $30 billion GAAP pipeline.

Alaska’s state budget remains at surplus even at today’s lower prices, and that’s relevant because oil royalties contribute nearly 90% of the state’s revenues. As for employment, Alaska is enjoying its 21st consecutive year of statewide job growth and range from the top cortile [ph] of phase in terms of year-over-year job growth. As for income and spending, Alaska insists benefited from record permanent fund dividends and a separate energy rebate valued together at $3,300 per residence or $2 billion overall.

Against this economic backdrop, we continue to transform ACS to capitalize on telecommunications growth opportunities. And in our assessment, both strategic growth areas are wireless and enterprise data. For the past quarter, ACS grew revenues overall with wireless and enterprising accounting for 48% of the totals. We set ambitious goals for the enterprise segment and we’re on tract to meet them all.

First, the commercial launch of AKORN, the new ACS submarine fiber optic cable to the lower 48. The project is on track, both schedule and budget; second, the closed of the Crest acquisition. We closed the transaction earlier today and we are moving promptly into merger integration; third, generating contribution dollars from growth in the enterprise segment sufficient to cover the $9 million of incremental operating and finance carry-cost of the AKORN and Crest investments. Enterprise revenues grew 13% sequentially and 37% annually. And with that, we have ended the quarter substantially covering the $9 million target.

We’ve also set ambitious goals for the wireless business and we’re on track there too. During the quarter, we completed our upgrade to EV-DO Rev A technology keeping ACS in a position of delivering the fastest data seed in Alaska. Much discussed all year, we proactively lowered prices to match AT&T and then proactively converted our customer base so we could neutralize much of AT&T impact in the Alaska market as we exited the third quarter and the impact of re-pricing is substantially behind us.

In the quarter, we again brought the mostly highly valued subscribers into the fold with unlimited voice and data card users comprising over 30% of total gross assets. Our postpaid customer mix is also best-in-class at 93%, and we were finally able to include BlackBerry in the ACS lineup launching this dominant product through our channels starting in mid September, and we look forward to the ARPU benefits flowing into ACS results over time.

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