Telephone and Data Systems, Inc.

cellular first quarter 2021 conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require further assistance, please press star 0. It is now my pleasure to turn the call over to your speaker today, Ms. Jane McCown. Please go ahead.

Thank you, Greene, and good morning, everyone, and thank you for joining us. We hope that you and all your families are doing well. I want to make you all aware of the presentation we have prepared to accompany our comments this morning, which you can find on the investor relations section of the TDF and U.S. cellular websites. With me today and offering prepared comments are from TDF, Pete Cereta, Executive Vice President and Chief Financial Officer, From U.S. Cellular, LT Theravold, President and Chief Executive Officer. Doug Chambers, Executive Vice President and Chief Financial Officer. And from TDS Telecom, Vicki Villacrez, Senior Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and U.S. Cellular investor relations websites. Please see those websites for slides referred to on this call including non-GAAP reconciliations. We provide guidance for both adjusted operating income before depreciation and amortization, or ODDA, and adjusted earnings before interest taxes depreciation and amortization, or EBITDA, to highlight the contributions of U.S. Cellular's wireless partnerships. PDS and U.S. Cellular filed their SEC Forms 8-K, including the press releases, and Forms 10-Q yesterday. As shown on slide two, the information set forth in the presentation and discussed during this call contains statements about expected future results and financial results that are forward-looking and subject to risks and uncertainties. Please review the Safe Harbor paragraphs in our press releases and the extended versions included in our SEC filings. In terms of our upcoming IR schedule, slide three, We're doing a J.P. Morgan virtual non-deal road show on May 11th. And then on June 16th, we are attending a virtual investor corporate access event with the New York Stock Exchange. And as always, our open door policy remains an open phone or open video policy. So please reach out to us if you're interested in speaking to us. And I will now turn the call over to Pete Strader. Pete?

Thanks, Jane, and good morning. Before speaking about the balance sheet and our funding strategies, I want to make you aware of the change in presentation at TDS Telecom. Starting this quarter, TDS Telecom's disclosure will not be presented as a single segment, and the wireline and cable segments will no longer be reported separately. We believe this change not only aligns with how we manage the business and evaluate operating performance today, but it also enhances the visibility into how TDS Telecom is performing against its strategic objectives. The combined view better depicts our progress and success in leveraging a single cost base to become the preeminent broad... Operator, we see... The change in segments... I'm sorry. The change in... Yes, are you still there?

Yeah, you cut out for a minute.

Okay. The combined view better depicts our progress and success... and success in leveraging a single cost base to become the preeminent broadband provider in each market in which we operate. The change in segment reporting has no impact on the net income of TDS Telecom in prior periods and prior periods have been conformed to the current presentation. You will notice that we have made enhanced disclosures of our progress in building out fiber to the home in our presentation today so that you can more closely follow our progress in this very important initiative. Also, in terms of the results, and impacting year-over-year comparisons, I want to remind everyone that we have a higher tax rate in 2021 compared to 2020 due to the income tax benefits of the CARES Act, which provided a one-time rate benefit in 2020 that does not recur in 2021. Regarding our balance sheet, both PDS and U.S. Cellular are taking action to lower interest expense given the favorable market environment. In April, PDS and U.S. Cellular both announced redemptions of select senior notes. TDS is redeeming $225 million of its 6.875 senior notes and $300 million of its 7% senior notes, and U.S. Cellular is redeeming $275 million of its 7.25% senior notes for a total of $800 million. We will continue to look for ways to avail ourselves of other low-cost financing vehicles to further lower our interest expense. As we've discussed on prior calls, maintaining financial flexibility is one of the pillars of our corporate strategy. Over the years, we have worked to retain relatively low leverage levels, long-dated debt maturities, sufficient undrawn revolving credit facilities, and significant cash balances, while at the same time making sure we have the financial resources we need to fund our businesses. As you see on slide four, at the end of the first quarter, TDS continues to have a good financial position, including ample available funding sources consisting of cash and cash equivalents and available credit facilities. While we will be using some of our available cash and partially drawing on our TDS revolver to call the notes previously mentioned, we believe we will have ample remaining cash balances as well as excellent access to the debt markets if additional capital is required and as further steps to reduce our interest expense are taken. U.S. Cellular and TDS Telecom are currently both in investment cycles, with U.S. Cellular investing in network modernization, 5G and spectrum, and TDS Telecom aggressively investing in fiber expansion. In March, TDS issued $420 million in perpetual preferred stock, which will be used primarily for funding fiber deployments and the repayment of debt. This transaction enabled us to raise significant proceeds while protecting our credit rating. TDS continues to return value to its shareholders, primarily through dividends, though TDS and U.S. Cellular each opportunistically purchased a small amount of their shares in the quarter. TDS purchased $3 million worth, and U.S. Cellular purchased $2 million worth of shares. In sum, we are in a financially solid position to take advantage of growth opportunities in each of our businesses. I will now turn the call over to L.T. L.T.

Thanks, Pete. Good morning, everyone. To flip to slide six, our strategic imperatives are simple. They're designed to drive growth and improve return on capital over time. I think we're off to a really good start this year. I'm going to let Doug cover the operational and financial highlights of the first quarter, and I'm going to provide a few thoughts on strategic priorities. First, I stated on previous calls that one of our areas of opportunity is to enter into strategic partnerships. better leverage the value of our assets, and to grow the business. We made progress on this objective in April by signing a tower MLA or a master lease agreement with Dish Wireless. We expect this agreement to contribute to our tower revenue growth beginning in 2022. Any details on the deal have to remain confidential, so please keep that in mind if you've got additional questions. I spoke to you last quarter about some of our new initiatives to drive growth. including a regionalized approach to drive market share and plans for our business and government and prepaid segments. We have full steam on these, and I'm pleased with our progress. You see that in year-over-year improvement in gross additions and improvement in insurance for both post-date and prepaid. I'm also excited for the next evolution of our brand journey and our new tagline, America's Locally Grown Wireless. U.S. Cellular has always been known for its outstanding network, branding highlights the strong local presence we have in our markets. I think this is what sets us apart from our competition, and it reflects our culture and our values. Board on competition. The competitive intensity of the wireless industry remains high, and we intend to respond as appropriate. Given the total spend on the C-band auction, I'm expecting continued rational pricing, and that most of the promotional activity will remain related to devices. And I think that's a world we can live in economically. A few words on our network position. Network performance continues to be a hallmark of our strategy. We're continuing our network modernization program and our multi-year 5G deployment. We have one 5G over each layer of spectrum, low, mid, and millimeter width. Our initial deployment for coverage is on clean, low band spectrum. We have 5G available to some degree in 18 states today. We were largely satisfied with our C-band purchases. When combined with our CBRS holdings, we now have mid-band spectrum in nearly all of our operating footprint. Also, we've deployed millimeter wave spectrum in order to offer fixed wireless access in three test markets. A pilot launch in those markets is expected to occur in the third quarter of this year, and we'll formalize and communicate our plans when the results become available. We continue to be optimistic on the performance capability of the millimeter wave spectrum. We recently performed additional millimeter wave spectrum testing with bait station and radio enhancements, and we achieved line-of-sight propagation distances of 7 kilometers with average speeds approaching 1 gigabit per second. This exceeds our results from last year, where we achieved distances of 5 kilometers with average speeds of 100 megabits per second. Finally, I just want to say a word about talent. I'm more convinced than ever that attracting and retaining talent is a significant differentiator. This past year has stressed everyone's approach to people, but I'm really pleased with how US Cellular has responded. I do believe that the drivers of talent of yesterday aren't the same as the drivers of tomorrow. Pay and benefits will continue to be important, but we're going to need to think even harder about work flexibility, a constant learning environment, and a visible focus on diversity, equity, and inclusion. We're nearly complete with a comprehensive strategy to help our team move to a more matrixed work environment, splitting time between home and the office. Certain associates that have been working from home will start returning to the office in June on a volunteer basis, but they'll be returning to a more flexible and smart environment. I expect this will help us increase engagement. I also think it's going to help us manage costs. On the diversity front, we were recently ranked 75th, well above all of our peers, by Forbes, as one of America's best employers for diversity in 2021. This award, and many others like it, provide us brand recognition as we compete to attract and retain the very best talent. Now I'm going to turn it over to Doug, and he's going to cover the details of the quarter.

Doug? Thanks, LT. Good morning. As LT mentioned, we're off to a good start this year. Let's start with a review of customer results starting on slide seven. Postpaid handset gross additions increased due to higher switching activity and our ability to capture a larger portion of that switcher group this year versus last year. The switching group increase was driven primarily by March activity, which was severely depressed last year as a result of the unfolding pandemic and was bolstered this year by stimulus payments. Our ability to attract switchers increased year over year due primarily to success of our no-requirements messaging on lead promotional offerings. We saw connected device gross additions decrease by 3,000 year-over-year. This was driven by low gross additions of internet products such as hotspots and routers compared to the prior year when we experienced an increase in demand due to COVID-19. The decline in hotspot and router sales was partially offset by an increase in connected watch gross additions. Wrapping up this slide, total smartphone connections increased by 13,000 during the quarter and by 56,000 over the course of the past 12 months. That helps to drive more service revenue given that smartphone ARPU is about $20 higher than feature phone ARPU. Next, I wanted to comment on the post-paid churn rate shown on slide eight. Currently, churn on both handsets and connected devices continues to run at low levels. Post-paid handset churn, depicted by the blue bars, was 0.92%, down from 0.95% a year ago. This was due to lower involuntary churn, which continues to run lower year over year as a result of having acquired customers with a better credit mix and improved customer payment behavior. Total post-paid churn, combining handsets and connected devices, 1.12% for the first quarter of 2021, also lower than a year ago. Now let's turn to the financial results on slide 9. Total operating revenues for the first quarter were $1.023 billion, an increase of $60 million or 6% year-over-year. Retail service revenues increased by $14 million to $685 million. The increase is primarily due to a higher average revenue per user, which I will discuss in a moment, as well as an increase in average post-paid subscribers. Inbound roaming revenue is $28 million. That was a decrease of $9 million year-over-year, driven by a decrease in data volume. One of the factors contributing to this data volume decrease is the merger of Sprint and T-Mobile and the migration of Sprint roaming traffic to T-Mobile's network. Other service revenues were $58 million, an increase of $4 million year-over-year, including a 9% increase in tower rental revenues. Finally, equipment sales revenues increased by $51 million year-over-year due to an increase in units sold, an increase in sales of higher-priced units, as well as an increase in accessory sales as a result of higher volume. Now a few more comments about post-paid revenue shown on slide 10. Average revenue per user, or connection, was $27.65 for the first quarter, up 42 cents, or approximately 1% year-over-year. On a per-account basis, average revenue grew by $2.33, or 2% year-over-year. The increases were driven primarily by an increase in regulatory recovery revenues, favorable plan and product offering mix, and an increase in device protection revenues. Turning to slide 11, as we continue our multi-year network modernization and 5G rollout, control of our towers remains very important. By owning our towers, we ensure we maintain the operational flexibility to add new equipment and make other changes to our cell sites without incurring additional costs, which is very important, particularly given our current technology evolution. As you can see on the slide, with the assistance of our third-party marketing agreement, we have seen steady growth in power rental revenues. As I mentioned, first quarter power rental revenues increased by 9% year-over-year. LT noted earlier the new master lease agreement we signed with Dish Wireless, and we will continue to focus on growing revenues from these strategic assets. Moving to slide 12, I wanted to comment on adjusted operating income before depreciation, amortization, and accretion in gains and losses. To keep things simple, I'll refer to this measure as adjusted operating income. As shown at the bottom of this slide, adjusted operating income was $258 million, an increase of 12% year-over-year. As I commented earlier, total operating revenues were $1.023 billion, a 6% increase year-over-year. Total cash expenses were $765 million, increasing 33 million or 5% year-over-year. Total system operations expense increased 3% year-over-year. Excluding roaming expense, system operations expense increased by 2% due to higher circuit costs. Roaming expense increased 1 million or 4% year-over-year, resulting from an 80% increase in off-net data volume that was largely offset by a decrease in rates. Cost of equipment sold increased 58 million or 26% year-over-year due to an increase in units sold, an increase in sales of higher-priced smartphones, as well as higher accessory sales value. Selling in general and administrative expenses decreased 30 million or 9% year-over-year, driven primarily by a decrease in bad debts expense. Bad debts expense decreased 26 million due to lower write-offs driven by fewer non-paid customers as a result of a better credit mix and improved customer payment behavior. We also recorded bad debts expense in the first quarter of 2020 related to the FCC Keep Americans Connected pledge, which contributed to the year over year decrease. In addition, advertising expense decreased year over year. Turning to slide 13, I'll touch on adjusted EBITDA, which starts with adjusted operating income and incorporates the earnings from our equity method investments, along with interest and dividend income. The chosen EBITDA for the quarter was $302 million, an increase of $21 million, or 8% year-over-year. Equity and earnings of unconsolidated entities decreased by $3 million, or 7%. Next, I want to cover our guidance for the full year 2021. For comparison, we're showing our 2020 actual results. Our guidance assumes that COVID-19 does not cause any significant incremental economic consequences that would negatively impact our business. For total service revenues, we have increased our midpoint by $25 million to a range of $3.05 to $3.15 billion. This increase is driven by an increase in our projections for built revenues and miscellaneous service revenues. we have raised the midpoint of our adjusted operating income and adjusted EBITDA ranges by $25 million by increasing the low end of the ranges with no change to the high end of the ranges, resulting in new ranges of $850 to $950 million and $1.025 to $1.125 billion, respectively. In addition to the increase in our projections for service revenues, The updated ranges incorporate favorability in bad debts and selling and marketing expenses. This favorability is partially offset by an expected increase in loss of equipment for the remainder of the year compared to our earlier projections. For capital expenditures, we are maintaining our guidance range of $775 to $875 million, and we have provided a breakdown by major category. I will now turn the call over to Vicki Villagrez. Vicki?

Thanks, Doug, and good morning, everyone. I'm very pleased with our results for the first quarter. We had strong growth in both broadband connections and revenue. Overall, we grew total organic connections for the third consecutive quarter. We added 13,000 fiber service addresses to our footprint and continue to execute on our fiber strategy. Overall, we grew our top line 4%. As Pete referenced earlier, the change to one segment reporting results in a combined presentation of our wireline and cable operations. We have been on a trajectory to integrate our businesses around the common strategy of providing superior broadband service and complementing that with value-added video and voice service bundling. Whether it is our markets where we have upgraded copper, are building fiber, or provided DOCSIS 3.1 capabilities, we are striving to increase internet speed to better serve our customers. On a combined basis, we are able to offer one gigabyte speed to 55% of our total service addresses. We remain committed to our strategic priorities. We've been invested in for several years. Our primary strategic objective is to provide growth by investing in our high speed broadband services. We have a multifaceted approach to this growth that includes leveraging our existing networks and constructing greenfield fiber in opportunistic locations. With support from the FCC's ACAM program and state broadband grants, PDSTelcom is also deploying high-speed broadband to customers in rural areas within our incumbent market. If you turn to slide 17 of the earnings presentation, total residential connections increased 4%. due to residential broadband growth in new and existing markets, partially offset by a decrease in voice connections. Total telecom broadband residential connections grew 9% in the quarter as we continue to fortify our networks with fiber and expand into new markets. Bolstered by this growth, wireline broadband residential connections grew 10%. and cable increased 8%. Total broadband penetration continued to increase, up 100 basis points to 38%. Overall, higher value product mix and price increases drove a 5% increase in average residential revenue per connection. Cable average residential revenue per connection reflects a higher mix of video connections relative to wireline. Our investment in TDS-TV Plus and our expansion into new markets will drive video connection growth. On slide 18, you can see the broadband connection growth across all markets. This quarter, we achieved a major milestone, reaching half a million total broadband subscribers. Residential broadband revenue grew 16% in total in the quarter. We are offering up to one gigabyte broadband speed in both our fiber and DOCSIS 3.1 markets. The one gigabyte product is an important tool that allows us to defend markets and win over customers in new markets. In areas where we offer one gig service, we are seeing 17% of our new customers taking this superior product. Now turning to slide 19. We have augmented our success growing broadband with our TDS TV Plus offering. Our next-generation video platform enhances the customer viewing experience, and as a bundle, these products provide a best-in-class customer service and help us to increase our broadband market share and reduce churn. Residential video connections held nearly flat. Wireline growth of 7% driven by our expansion market nearly offsets losses in the cable market. Video continues to remain important to our customers. Our strategy is to increase our video connections through the offering of our cloud-based CDS TV Plus product. This rollout of this product currently covers about 60% of our total operation. We continue to be bullish on our fiber strategy, which is shown on slide 20. Fiber is the most economical long-term solution to deliver the best broadband experience. Selecting the right markets remains key, and we have an attractive funnel of markets identified. In fact, Coeur d'Alene, Idaho and Spokane, Washington top the list of the country's hottest emerging housing markets. This is according to the recent rankings by the Wall Street Journal. Our marketing and sales techniques enable us to effectively market at a neighborhood level. This gives us tremendous flexibility over timing and execution to consistently target a high broadband take rate. Our strategy to cluster our market is critical as it gives us economies of scale and better returns over time. Additionally, our strategy capitalizes on strong macroeconomic trends, such as growing work-at-home environments, strong population migration in our chosen markets, favorable advances in technology, and bipartisan support for rural broadband funding. Slide 21 shows the progress we are making this year on our multi-year fiber footprint expansion. which includes fiber into incumbent markets and also expansion into new markets. As a result of this strategy over the last several years, 321,000 or 38% of our waterline service addresses are now served by fiber, which is up from 32% a year ago. This is driving revenue growth while also expanding the total wireline footprint 6% to 855,000 service addresses. Moving on to slide 22, we've highlighted the total service addresses for the clusters that are in construction and we are actively marketing. We have completed 321,000 cyber service addresses through the first quarter and are working to build out the footprint in these announced markets to 620,000 service addresses by 2024. We have identified other attractive opportunities where we can be first to market and expect to plant our flag in these markets in the near future, which will increase these numbers. We continue to be pleased with overall take rates in the areas we have launched to date. Our pre-registration rates, which indicate the demand we are trying to satisfy, are even higher than our expectations. And we have a very high conversion rate when construction is completed. We are scaling up and are expecting our fiber service address delivery to double in 2021 from the prior year. On slide 23, total revenues increased 4% to $249 million, largely driven by the strong growth in residential revenues, which increased 9% in total. The chart includes residential revenue mix, which highlights the increasing contribution of our expansion market. Incumbent wireline markets also showed impressive growth of 6%, due to increases in broadband and video connections, as well as increases from within the broadband product mix. This was partially offset by a 2% decrease in residential voice connections. Cable residential revenues grew 9% due to an 8% increase in broadband connections. Commercial revenues, which can continue to be impacted by sea-like declines, decreased 6% to $47 million and a quarter. And wholesale revenues decreased 3% to $45 million, primarily to reductions in special access in the incumbent wireline market. So let me sum up the combined financial results for the quarter as shown on slide 24. Revenues increased 4% from the prior year as growth from our fiber expansions and increases in cable broadband subscribers exceeded the declines we experienced in our legacy business. Cash expenses increased 5% due to additional employee and advertising expense related to our expansion market. We also saw increases in video programming costs and information processing expenses where we are making IT investments to simplify and consolidate our support systems. Adjusted EBITDA declined 1% to $81 million on lower interest income compared to last year. Capital expenditures increased 30% from last year to $70 million as we continue to increase our investment in fiber deployment and success-based spend for new customer installs. And finally, moving to slide 25, we have presented guidance, which is unchanged from what we shared in February. We have had strong broadband connection growth across all our markets of operation, combined with increased average residential revenue per connection. We continue the rapid advancement of our fiber deployment in new markets, but we have portions of our fiber bills that depend on third parties, which may impact our ability to stay on our very aggressive service address delivery schedule. I will continue to update you as we move through the year. With that, I want to thank all our associates for their continued dedication to our challenging growth agenda. We have had a successful start to the year and look forward to updating you on the second quarter. And with that, now I'll turn the call back over to you, Jane.

Thanks, Vicki. And operator, we're ready to take questions.

Sure. As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from Rick Prentice from Raymond James. Your line is open.

Thanks. Good morning, everyone.

Morning, Rick.

Hi. I want to take a look first at the guidances. At U.S. Cellular, came in strong in the quarter. As we think about run rating, that obviously increased the low end but kept the high end flat. I think, Doug, you mentioned you're expecting maybe higher loss on equipment promotions. As you think through that, is cost of service kind of a good run rate level? And with the competitive environment, do you think you'll – be able to achieve positive postpaid phone ads in future quarters and maybe for the year.

Good morning, Brett. And so with respect to the run rate of our guidance, and we mentioned in the call the reasons we took it up with service revenue increase resulting from misplaced revenues as well as favorability regulatory revenues and rate plan mix. From a run rate perspective, selling and marketing expenses are a little bit back and loaded toward the end of the year. And we also have some peaks in operations expenses in the second and third quarter with heavy construction and maintenance season. So the run rate is not quite uniform throughout the year when we look at that. And so again, I think we cited the reasons for the take the guidance. in the comments. With respect to increasing subscribers, you know, we don't guide specific subscribers, but certainly we've stated that we are, you know, very focused on growing market share as well as growing our sub base. So I think the answer to that question is yes.

Okay. And for Vicki on the TVS side, similar question then. Strong quarter, $81 million of adjusted E, but what should we think as far as why you wouldn't be headed towards the high end of that guidance or why couldn't guidance go up? I assume there is some sales and marketing cost of service increases as you roll out more markets, but just wondering the trends on TDS Telecom.

Yeah, thank you for that question. We did have a strong quarter, very pleased with our quarter and where we're headed. And it's certainly the strong start has given us some headroom on the year. As you know, we're ramping up our construction in our fiber deployment, both within our incumbent markets and in new expansion markets. And that's going to ramp up through the year. And so while I expect new growth revenue to come in for the year, we are also going to be experiencing higher costs with the launches of these new markets. Every day we're turning up new neighborhoods. And as these come into the fold, you know, we have the upfront costs associated with that. But we're well on track for hitting and staying within our range of guidance at this point.

And my last question would be supply chain. On the U.S. cellular side, any issues? We've heard other people on their conference calls talk about being skittish on the supply chain. Any concerns on handset supplies? network supplies. I know LG is out of the handset business, but just as from the supply chain standpoint, from U.S. cellular, handsets and network side, and from TBS Telecom, it does seem like given the 150,000 service addresses added this year might be tough. Just kind of talk to that.

Hey, Rick. It's LT. Yep. Two drivers on the supply chain side that you mentioned, and I think they're the two big ones that we're paying attention to. LG is the first. We are well prepared for that. Most of the LG sales are in the prepaid side of our business, and we've got a fairly robust device ecosystem. So that does not concern me. I think we're well prepared and we can serve the demand that's out there. Chipset side of the house I pay a lot of attention to. Thus far, I'm not seeing effects on our business. Thus far, if there are impacts, we think we can manage it. But that one I'm paying a lot more attention to. I'm not sure if I would use the word skittish, but concerns, certainly. So that one we're kind of looking more closely at. Thus far, no impact, but that's not to say that it couldn't if we start to see that ramp up. Vicki, you want to answer the... that telecom infrastructure set?

Yeah, sure. You know, we've been watching the supply chain very carefully, and we're in constant touch with many of our suppliers. And in some cases, we've diversified, you know, our suppliers where it's made sense. And having those choices helps. But right now, I think the biggest risk I see is the lead times are getting longer. And therefore, we have to be more diligent in our forecasting and our sourcing of our product needs much farther in advance. And so some of the capital spending starts to go towards building up inventory. You know, not significant yet, but definitely something we're watching. We're sensitive to the availability of electronics and gear, you know, that's associated with our fiber built. You're thinking about pads, connectors, rods. O1Ts, modems, the chipsets are in modems. And so these are kind of the areas where we're seeing longer lead times. And so our partnership with our suppliers is really important. Thus far, we haven't had any issues with sourcing fiber, and we do secure that inventory with a longer lead time. Now, as I think about your second part of your question, which is we delivered 13,000 service addresses in the first quarter, but we're looking to scale up and double down on the full year of delivering 150,000 service addresses. And our construction is not without challenges or obstacles, but we expect that really to ramp up. These are complex, large projects. And so securing the contractors and the labor for building out the fiber is also a critical component of our sourcing. And as we think about planting flags in new markets, working and contracting with those suppliers continues to be critical.

Thanks. Stay well.

Thank you.

Your next question comes from from JP Marketing. Your line is open.

Hi, guys. Thank you. A couple, if I can. First, LT, you talked about the market going to promotions on handset discounts. I heard you that churn remains low and then involuntary in particular as well. Are you seeing a voluntary churn ticking up at all as the world sort of reopens? And any shift in where customers are going when they leave?

Slight upticks, involuntary churn, but I think completely in line with what you would expect fact when you start to see a little bit of a larger switcher pool. Answer to the second question is no, there's not a big shift in where they're going. We don't publish it, but our win share and our loss share and our port ratios to different carriers has remained generally constant, so not a big shift there.

No impact from cable getting more aggressive with T-Mobile's showing up a little bit more in these markets?

We're not seeing it. We're not seeing it yet. I mean, I'm not suggesting that there's zero impact, but in terms of incremental impact, I mean, thus far, we're not seeing it.

Okay. Thank you. And then, Vicky, under the category of, you know, what have you done for us lately, I heard you say that new fiber addresses will double this year versus last. think 150 000 you said can you accelerate that fiber construction further um and any sign of incumbent telcos building in some of the areas that you find attractive outside of elect footprint yeah so um

great great question we we are we're very focused on scaling up our operations doubling our fiber uh the number of constructed fiber locations over last year uh i think definitely shows the organization is scaling up and and last year you know we more than doubled the prior year so um we are very much focused on how can we go faster how can we accelerate these builds and it's a it's a real partnership quite frankly with the city uh the cities that we're building in the support that we need from the city officials um the partnership with our suppliers and our our construction contractors um and then our own teams and uh you know you know we're learning um and and We take those learnings and we put them into the next build. And, of course, there's always going to be challenges as you run into different obstacles throughout the way. But we're learning and pushing our way through those. In terms of, you know, a good question around the ILAC competitors. we're very confident in our fiber strategy, and we feel we've got a significant head start over, you know, over the other telcos that are just starting to now focus on deploying fiber. You know, we've been doing this for a long time. We've fibered up our, you know, a third of our own footprint, overbuilt our own markets, and we learned from that. And I think, you know, I think We're just continuing to accelerate our program, and we've got a head start.

Thanks, Vicki.

Your next question comes from Simon Fleury from Morgan Stanley. Your line is open.

Great. Thank you very much. Good morning. LT, you talked a little bit about some of the new initiatives to focus on growth. Give us a sense of where we are in the rollout of these and the impact. When do you think we'll see the full benefits of these programs coming through in the results? Obviously, some good progress this quarter, but do you think we'll see more as we go through the year? And maybe any thoughts on just what's driving the total industry ads that we've seen here? I think you mentioned stimulus checks on one level, but any other thoughts would be great. And then, Vicky, perhaps some thoughts on the infrastructure bill and broadband funding for municipalities and others, how you think about is there opportunity for TDS there? Any thoughts would be great. Thank you.

Good morning, Simon. In terms of growth drivers, I'd point at four, and let me just kind of give you a bit of an update on each one of these. So one of the ones I talked about on previous calls was regionalization, taking a regional approach. We've started doing that. So we started trialing different promotional activity in different regions. Frankly, think of it as doing AD testing on a regional basis, and it's working. We think we're able to pretty quickly hone down on which promotions resonate, which ones don't, which drive traffic. And so from a regional perspective, I think that one is working nicely. It's where I would expect it to be, and you can see some of the results in our post-paid, what we're doing from a post-paid perspective. We talked about prepaid. You're already starting to see some of the results of the greater focus on prepaid in our results in this quarter, and I expect that's going to pick up for the rest of the year. The initial focus was around lifecycle management. I talked about initially we would reach out to our prepaid customers pretty irregularly. in the sense that we'd send them a note when they joined the network, we'd send them a note when they ran out of eligibility, and we'd send them a note when they were no longer a customer. We're starting to become much more active around that, and reaching out to our prepaid customers more often gives us the opportunity to bring down churn. You see that in the results. It gives us the opportunity to expand ARPU. What it also allows you to do when you have churn that goes down and you have expanded ARPU, you can get more aggressive from an acquisition perspective. So I'm comfortable with where we're at from a prepaid perspective. Business and government, still a work in progress. I'm comfortable with what we put in place, but this is a longer term initiative. So we hired Kim Curran, who's from Odinson Sprint. I think she's put a lot of really good initiatives in place around expanding channels. So we've started to get a bit more aggressive on the indirect side, partnering with value-added resellers, partnering with master agents. Those things take time, but I expect that that's going to be picking up. And you'll probably start to see results late this year, early next, in terms of seeing a bit more increase in activity from the business and government sector. It has a longer lead time than I would expect it to. And the final one that I talked about is increase in partnerships. And so, you know, you've already seen the impact of us taking a more aggressive approach to partnerships with the DISH-MLI. And then I've taken into details on the contract itself, but just to kind of give you an idea about what that means. Okay, well, it's nice, LT. What does it mean to be more aggressive from a partnership perspective? You know, we hired Austin Summerford to come and run that portfolio as well as other things, roaming, business development strategy. And one of the things that we've looked at is how can we become a more attractive partner to people that are interested in getting access to our towers, right? No secret, our co-location rate's been lower than the industry average, and we've got to fix that. Well, there's things that you can do that are fairly tactical to make yourself more attractive. You can bring your cycle time down, processing applications. We've done that. Cycle times are down considerably over the last six months. The other thing that we did is we took a look at just some of the policies in our towers. So in the past, we would reserve a pretty significant amount of RAD center space or overall tower space for potential network expansions. We're still reserving it. We brought that down a little bit so that we could, you know, expand the amount of capacity we could have available to partners. The other thing we did is we said, look, you know, we've got assets at those towers in the form of generators and shelters and backhaul, and, you know, we're willing to share that with our partners if the economics make sense. And so, you know, we've taken those actions. I think the DISH deal is the first example of those actions bearing fruit. I expect to see more. So hopefully that gives you some flavor about how we're doing from a growth perspective. I'm encouraged. I expect to see, you know, those efforts continue to bear fruit, certainly throughout the rest of this year and particularly going into next. Vicki, let me hand it over to you for the other question.

Sure. You know, on the infrastructure proposal, you know, we're watching this as it develops. You know, we've seen summary information, you know, but I think the details are still forthcoming. I think critics are taking, you know, aim at different elements. But I expect the broadband portion to likely survive the process. The total spending where it ends up may be scaled back a bit. You know, I'm not sure, but... You know, I think it's too early right now to speculate on how specifically the bill is going to drive further growth at TDS Telecom, but we're definitely watching its development. But, you know, standing back just from additional funding from government programs, We have a long history of participating, and right now we're currently active, as you know, in the FCC's ACAM program. And without that level of support, we would not be able to make the economic work to build to the very remote areas that we're building right now. And as we're in the fifth year of that program, we filled out to half. of the 160,000 location obligation under that program. And we have more work to do under that. But we're also in active discussions with the FCC and others on extending the ACAM program. Because if you recall, the start of that program was about 25 megabits speed. And through the pandemic and the acceleration of broadband adoption and growth that we're seeing in the adoption of higher speeds, we're talking about maybe extending that program to build out to even higher speeds longer term. And we're also participating in state broadband programs, the FCC's Lifeline Broadband Program, EBB, and also the American Rescue Plan. We're evaluating participation in that. So lots of opportunities that are in play, and we can update you as we move forward.

Great. Thank you.

Your next question comes from Michael Rowland from CD. Your line is open.

Hi. Good morning. I want to go back to the comments, LT, you were making about partnerships. And just curious if you're also considering alternative strategic relationships with the industry. If you look at direction of competition in your markets, is there an opportunity to improve the structure of your markets, and to be able to just help that longer-term competitive positioning?

Simple answer is yes. I've been fairly clear even on past calls that we're interested in a variety of different ways for us to better serve our customers, better improve return on capital. And I think that if you look at CBANs, The amount of money that was spent in the industry on C-band, the amount of money that's going to be required to deploy that C-band spectrum, I think it's incumbent upon us as an industry to be creative on the way that we think about deploying that, the way we think about getting the best speeds and the best experiences to our customers in the most capital-efficient way. And so the simple answer is yes. We're certainly evaluating those options. These things take a lot of time. They don't just happen overnight, but that's something we're looking at.

Thanks.

Your next question comes from Sergey Lisevsky from Gamco Investors.

Good morning, guys. Thank you for taking the questions. My first question is for LT. Obviously, it's great to see at least agreement with Dish Wireless, and I understand that you guys are limited as far as what you could say. But could you maybe talk a little bit about the background of this deal, how it got to that point? And also maybe just in general, talk about other conversations with other companies. What types of companies are you talking about, about potential lease agreements? Are there any non-traditional players that you're talking to?

Yeah, Sergei, so, I mean, how the deal came about, I mean, obviously I'm fairly limited in what I can share, but, I mean, just broadly, you know, I think that we tried to make it fairly clear that we were open for business as far as our tower assets. I think that we have a relatively attractive value proposition. So, I mean, my traditional competitors from a wireless business perspective, I think about AT&T, Verizon, T-Mobile. In the tower business, obviously I have a different set of competitors. And so I think about our value proposition vis-a-vis those competitors a little bit differently. I think we've got the opportunity to provide better levels of customer service, faster cycle times. Talked about that. I also think we have a set of assets that we can share in the form of shelters and generators and so on that Some of our competitors can't. You know, and frankly, I think that as a wireless operator, I'm also a customer of towers, and I understand what my customers want. And we're trying to take a fairly customer-friendly approach that some of our competitors don't always do. And so, you know, you put all that together, I think we're able to offer a pretty good value proposition, and clearly that value proposition resonated with DISH, and I fully expect that that's going to resonate with others as well. I mean, we're fairly actively marketing those assets. We have a partnership with a marketing firm to help us with that. They do a pretty good job beating the bushes for potential customers, and I expect those co-location rates to go up over time. Those are dollars that drop right to the bottom line in terms of positive cash flow. So I'm optimistic about that business, and we're going to keep pushing.

Great. And on a related question... Your sister company, TDS Telecom, has mainly improved its growth profile through fiber builds. And with the tower business and maybe running it more like a tower company, potentially become a similar growth vehicle for U.S. cellular, potentially enhancing revenue and profitability profile and helping increase valuation multiple in the stock.

I mean, in terms of the strategic opportunity for the tower business, I agree. I mean, it's a reason we're investing in this. I think it can be an attractive driver of growth. From a revenue perspective, I would argue more importantly from a cash flow perspective, right? It's an attractive vehicle for growth for us. I mean, we've talked about, I think we've kind of covered the separate company question in the past. That's not something that we're interested in doing. I think we see a lot of benefits in the operational synergies it provides us. The interesting thing is that in the past, we really looked at those operational synergies as primarily one-sided, meaning we own towers and they provide benefit to our network organization. What we're realizing is that there's another side benefit in that being a network company that uses those towers, you can provide benefit to your customers differentially. I talked about that already, but I think there's upside in both sides of the tower business, and you can expect to see us continue to push on that asset.

Great. Thank you. My next question is for Pete. So there were some buybacks in the quarter, minor buybacks at both US Adler and TTS, but if one marks your cellular stake to market, TTS Telecom, which is transforming into growing fiber and cable, broadband business is trading still at implied multiple of around three and a half times EBITDA. So why isn't this a level where you guys could do a more meaningful buyback or maybe a more consistent repurchase while still balancing your other capital allocation objectives?

Good morning, Sergey. Thanks for the question. You know, we've talked about in the past the balance that we're trying to maintain between having the dry powder to invest in all the things that Vicki and LT have been talking about today and returning cash to our shareholders through both the dividend, you know, don't forget about the dividend, and share repurchase. And you saw this quarter that we We went out and we raised some capital in a rating agency-friendly way. I'm talking about those perpetual preferred securities. So, you know, the rating is very important to TDS. It's part of our, you know, long-term sustainability enterprise. And so, again, it's just a balance that we have to maintain. And as we ramp up the funnel, the fiber funnel that Vicki has discussed, We have to make sure that we've got the funds to make those investments, all the significant investments that we've been talking about here. So we're going to continue to look at that balance, and it probably will never satisfy you, but we'll do as much as we can maintaining that balance.

Great. And my last question is for Vicky. kind of from the competitive environment in the markets, particularly in the expansion fiber markets. You're certainly seeing nice, broadened connection growth in those expansion markets, and I was wondering what kind of competitive response have you seen so far from the incumbent players, and has anyone gotten particularly aggressive in some of those markets?

You know, right now... Competitive response has been, you know, at minimal levels right now, Sergey. And, you know, I'm watching for a number of things. One, it's response from the cable company. You know, as we go into these new markets with fiber expansion, you Quite frankly, we expect to share the market with the incumbent cable company. If they've upgraded their network, we're both able to offer one gig speeds, and we're even aiming down the road to offer multi-gig speeds. The ILAC or the incumbent telephone company, for the most part, we've not seen any significant competitive response from them. Now, I know some companies are now talking about fiber deployment plans, but, you know, in these markets, we get in there, we finish our construction, and with our pre-registration sign-ups, you know, we have – we get significant market share early in the first 12 months. So that strategy is working very well. The third thing we watch for certainly is other fiber overbuilds. overbuilders, whether they're coming into the same market or they're beating us to a new market that we have our eyes set on. And right now, I think that's the biggest focus. There's a lot of opportunity in the U.S. Our funnel, our fiber funnel is wide. And as we're looking at our most attractive markets, I think getting to market first is is key.

Great. Thank you.

There's no further questions this time. I would now like to turn Nicole over back to Jane for closing remarks.

I'd like to thank everybody for joining us today and look forward to further updates.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.