Telephone and Data Systems, Inc.

My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to the TDS and U.S. Cellular's second quarter 2023 operating results call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. Thank you, Colleen Thompson, Vice President of Corporate Relations. You may begin your conference.

Good morning, and thank you for joining us. We 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 sections of the TDS and U.S. cellular websites. With me today and offering prepared comments are from TDS, Vicki Villacrez, Executive Vice President and Chief Financial Officer. From U.S. Cellular, LT Therabolt, President and Chief Executive Officer. Doug Tambers, Executive Vice President, Chief Financial Officer and Treasurer. Eric Jayer, Senior Vice President and Chief Marketing Officer. Austin Somerford, Chief of Strategy, Partnerships, and Towers. And from TDS Telecom, Michelle Brokwicki, 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 the 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 OIBDA, and adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, to highlight the contributions of U.S. Cellular's wireless partnerships. TDS and U.S. Cellular filed their SEC forms 8K, including the press releases, and our 10Qs earlier this morning. As shown on slide two, the information set forth in the presentation and discussed during this call contains statements about expected future events 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 version included in our SEC filings. I will now turn the call over to Vicki Villacruz. Vicki?

All right. Thank you, Colleen, and good morning, everyone. Before we get into the details for the quarter, I want to take a moment to acknowledge this morning's announcement that the board of directors of TDS and U.S. Cellular have each decided to initiate a process to explore strategic alternatives for U.S. Cellular. The comprehensive process will explore a range of strategic alternatives focused on the best interests of shareholders. Both TDS and the independent directors of U.S. SAILOR have retained financial and legal advisors in connection with the review. There is no deadline or definitive timetable set for completion of the strategic review, and there can be no assurance regarding the results or outcomes of this review. TDS and U.S. SAILOR do not intend to comment further on the strategic review process and we'll make further announcements as appropriate. We do not plan to answer any questions regarding the review process on this call today. Let me emphasize that we all remain committed to executing the strategic priorities that we set forth at the beginning of the year, which LT, Doug, and the rest of the team and Michelle will speak to next. With that, let's get into the details of the quarter. As you saw from our press release, we're halfway through the year. We continue to execute on our multi-year strategies while focusing intensely on cost containment. U.S. Cellular has begun deploying mid-band 5G spectrum, and TDS Telecom is making solid progress on its fiber program and expansion into new markets. At the end of the second quarter, TDS and U.S. Cellular combined have over $1.1 billion in available sources of liquidity, including cash, revolvers, EIP, and capacity on our repurchase agreement to help fund our businesses as needed. I also want to highlight that, as expected, U.S. Cellular paid down $150 million in debt during the second quarter and then paid down another $100 million in July. We continue to manage the balance sheet by keeping short-term maturities to a minimum in this higher interest rate environment. As a reminder, over 60% of our debt, including our preferred, are very long-dated maturities or indefinite in the case of the preferred. Briefly on guidance, U.S. Siler tightened most of its ranges, increased the midpoint of its adjusted EBITDA guidance, and then modestly reduced its service revenue guidance, reflecting an aggressive competitive environment. CDS Telecom, due to tight cost controls, increased its profitability ranges. They also reduced the midpoint of their capital expenditure guidance while still committed to its fiber service address delivery target. We have the entire organization focused on cost efficiencies and we will carefully pace our investments in order to preserve capital and navigate the current economic environment. And now I'll turn over the call to LT to update you on U.S. cellular results. LT. LT. LT.

Thank you, Vicki. Good morning, everybody. I turn to slide five. We remain committed to our strategic priorities that we laid out for all of you at the beginning of the year. Our top priority remains improving our subscriber trajectory. And although we were not satisfied with our post-paid gross ads in the quarter, we've been making notable strides in churn reduction. I'm very encouraged with that improvement. Over the past year, we've worked to improve our in-contract rate. It's currently at 62%. That's a big factor in churn. And as a reminder, customers that are in contract are much less likely to churn than customers who are out of contract. We're also being really targeted with promotions. posting varying campaigns in from time to time on a regional basis that allows us to focus on subscriber growth in a more fiscally disciplined way for instance while flat rate is being offered footprint wide other offers particularly focusing on upgrades are more targeted we're seeing steady adoption of our flat rate plans which we have tailored to our various regions As a reminder, while flat rate plans generate lower ARPU than traditional post-paid pricing plans, customers on these flat rate plans are generally not eligible for higher promotional discounts. In addition, about a third of our flat rate customers are on the top two pricing tiers. If you combine the promotional benefit and the higher pricing tier selection, on average, the flat rate plans have similar economics to our traditional plans over time. And notwithstanding the increasing penetration of flat rate plans, which is currently at 11%, our postpaid ARPU is still growing year over year. The team is doing a really nice job of moving customers up the rate stack and providing them with the enhanced value of our higher tiered plans. Going on costs, in this current inflationary environment, I'm really pleased with the way we're managing our costs. As I mentioned last quarter, we made some difficult headcount decisions. That'll help with run rate expenses. Doug will give you some additional details, and we'll talk more about expenses in a few minutes. Starting to fix wireless, we've seen continued momentum with that product. We ended the quarter with 96,000 customers, up 66% year over year. In July, we surpassed 100,000 customers. It's a milestone for this product. And remember, these results are all on low band spectrum. We're currently deploying mid-band spectrum. We intend to start offering fixed wireless over mid-band later this month. We expect that this will help us provide an even better experience for our customers, enable us to compete even more aggressively in areas of cable competition. That'll help us maintain our sales momentum for the coming quarters. Speaking briefly on the network, we're deploying our mid-band spectrum in the 3.45 band. We've done this in parts of Illinois and Iowa, Wisconsin, Maine, Missouri, Nebraska, Oklahoma, Oregon, Virginia. And we have a one-touch tower approach where we're hanging C-band radios at the same time as we hang the radios that manage the 3.45 spectrum. So we'll be ready to go on air with C-band when that spectrum clears later this year. We expect that the addition of mid-band through this multi-year deployment will further improve our competitiveness by enhancing both our fixed wireless and our mobility experience. Briefly on the BEAD program, we know fixed wireless broadband is a fantastic solution to help bridge the digital divide in circumstances where fiber is too expensive or maybe it's impractical to deploy. Based on our conversations with state officials, we believe that fixed wireless can play a meaningful role in connecting the unserved and underserved in America We believe we're well-positioned to participate in that space. We expect to be able to compete for about $7.5 billion in broadband funding. That will help us subsidize tower bills that aren't economical otherwise. As was mentioned earlier, Eric Jayer and Austin Somerford have joined us here today. I've asked them to give brief updates on two key initiatives in the business. First, as I mentioned in the first quarter, we launched our new brand campaign earlier this year. We've seen some really positive results that we believe are going to help us drive future customer growth. I've asked Eric to share some of our early results with you today. Austin leads our tower business. As you know, towers are a very valuable asset. We've seen really nice growth in tower revenues over the last couple of years. Austin is going to provide a bit more detail on our tower strategy and our path forward. Before turning the call over, I want to highlight we recently issued our first social impact report at U.S. Cellular. The report highlights our commitment to building better communities in the areas that we serve and our passion for connecting our customers to what matters most. I encourage you to check it out on our website. And as always, I also want to thank all of our associates for their dedication to serving our customers and supporting our communities. With that, I'll turn the call over to Eric, who's going to provide an update on our brand initiative. Eric?

Thanks, LT, and good morning. As LT mentioned, our mission at U.S. Cellular is to connect people to what matters most, and that means helping them to build genuine connections versus constant connections that can distract and divide. Because of this mission, we decided to adapt our brand strategy by taking on an issue people care about. It's just one of the steps that we are taking to attempt to improve our subscriber trajectory. And I wanted to share a few of the details with you today. As context for the campaign, while people love their devices, they are struggling with their relationship with technology. And 47% of Americans say they are addicted to their phones. So we positioned the brand to address that opportunity to create a healthy relationship with technology. We launched a new marketing campaign in the first quarter. Our first initiative was the Phones Down for Five Challenge. We asked people to take a break from their devices for five minutes, five hours, or five days to focus on connecting with what matters most. We've also launched a signature service called Us Mode, which uses functionality in the handset operating system to help people set up their devices for connection rather than distraction. The campaign has been impactful and is generating a high level of interest and engagement. We've already earned 358 million impressions to date. This is more than three times the number of people who watch the Super Bowl. Further, LT was just on Good Morning America last week discussing the resources we're making available to families trying to navigate this issue. Additionally, the campaign is helping to improve Net Promoter Score, or NPS. NPS measures how likely a carrier's respective customers are to recommend their services. As of June 2023, our NPS is higher than the big three carriers in our footprint. You'll see on the slide, we've gone from fourth place to first place in likelihood to recommend by current customers. As you can see on slide eight, the campaign is resonating. And while it's still early, we are already seeing impact with both current and non-customers, as those who are aware of our campaign score significantly higher on several key brand dimensions than those that are not aware. For our current customers, we believe this campaign has contributed to year-over-year reductions in churn we've seen the last two quarters that the campaign has been in market. For non-customers, we believe these results are a leading indicator that will increase both familiarity and consideration of the U.S. Cellular brand and will help drive improved gross ad performance as more people become aware of the campaign. Overall, We are very pleased with the early results of this campaign, and we are optimistic that it will help us drive future customer growth. I will now turn the call over to Austin Somerford, who will update you on towers. Austin.

Thanks, Eric, and good morning, everyone. As you all already know, U.S. Cellular is uniquely positioned as both a wireless operator and, based on the number of towers we own, also the fifth largest tower company in the U.S. We've driven strong growth in our third-party tower revenue over the last few years while continuing to support U.S. Cellular's network, and I believe we have further room for growth. Including the U.S. Cellular network, our tower tenancy ratio is currently only 1.55. That's up from 1.44 just two years ago, and we have room for further growth before we reach a tenancy ratio in excess of two, as we see with the large U.S. tower companies. Our towers are also well-positioned geographically. About 30% of them do not have a competing tower within a two-mile radius. Additionally, we have a well-diversified customer base spread across the states in which US Cellular operates, and we aren't heavily weighted towards any single carrier. And the revenues generated by this business result in high contribution margins, as there is relatively little incremental cost to add in a co-locator's equipment to one of our sites. In addition, we can offer an array of services that traditional tower companies can't, such as backhaul, power, and shelter space. And while these ancillary services aren't currently large revenue generators, the ability to offer them differentiates us from the competition. Moving on to results, as you can see on slide 10, the business delivered another strong quarter with $25 million of third-party revenue, which represents 10% growth versus the same quarter in 2022. With that said, and consistent with commentary from the publicly traded tower companies, we have seen a slowdown in new tenant and amendment activity this year. In addition, we've seen an uptick in terminations from T-Mobile as a result of their network integration efforts. The combination of these two factors has led to a slowdown of sequential growth, and for the remainder of the year, we are expecting growth to decline from the double-digit growth we achieved this quarter. We have a significant backlog of applications for both new tenancies and amendments, and we remain optimistic that leasing activity will pick up again in the coming quarters. I will now turn the call over to Doug, who will take you through the financials in more detail.

Thanks, Austin. Good morning. Let's start with review of customer results on slide 11. Postpaid handset gross additions decreased by 11,000, largely due to continued aggression in the competitive environment as well as decline in the pool of available customers. We still had postpaid net and set losses, but this improved year over year by 2000 as the declining gross additions was offset by improvements in voluntary churn, partially as a result of more customers in contract driven by our attractive upgrade offers in the second half of 2022 and first quarter of 2023. Moving to slide 12, Prepaid gross additions declined $6,000, and net prepaid additions decreased $4,000. In terms of gross additions, the overall pool of available customers declined year over year, which we believe is partially driven by competitively priced postpaid offerings, including our own flat rate plans. Now let's turn to the financial results starting on slide 13. Total operating revenues for the second quarter decreased 7% from the prior year, with service revenues declining 3%. The primary drivers of lower service revenues are declines in the subscriber base and roaming revenue. Inbound roaming revenue declined 55% due primarily to lower negotiated rates with other carriers, which also has the impact of decreasing our roaming expense. On the positive side, as LT mentioned, despite the increase in flat rate penetration of our subscriber base, We continue to see growth in ARPU as we continue to improve our plan and product offering mix as a result of customer adoption of our higher value, higher tier plans. As of the end of the quarter, 44% of our postpaid handset customers are on these higher tier plans. This helped mitigate the impact of promotional costs and service revenue and ARPU, which increased year over year. Equipment sales revenues decreased by 20% mainly due to decline in upgrade volumes. Next, let's turn to our quarterly operating performance shown on slide 14. For this discussion, I will refer to adjusted operating income before depreciation and amortization as adjusted operating income. As I noted, total operating revenues declined 7%, cash expenses declined 6%, and were flat excluding cost of equipment sold. This result was achieved despite the inflationary environment and increased operating costs related to our ongoing 5G rollout and is attributable to our strong focus on controlling costs, including our multi-year cost optimization program. As a reminder, in May, we announced a reduction in staffing, which should positively impact cash expenses in 2023 and beyond. We estimate full-year run rate savings related to this action of approximately $45 million, which we expect to fully realize in 2024. Wrapping up this slide, adjusted operating income declined 10% and adjusted EBITDA, which incorporates the earnings from our equity method investments, along with interest and dividend income, decreased 8%. Capital expenditures have decreased 47%, mainly driven by timing of expenditures in 2023 relative to the prior year as we continue to invest in our multi-year 5G mid-band deployment while prudently managing our free cash flow. Moving to slide 15, I will cover our guidance for the full year 2023. We believe that we are on track to deliver on our profitability and capital expenditure targets that we presented to you in February. And accordingly, the midpoints of adjusted operating income and capital expenditures remain unchanged. We are lowering the midpoint for service revenues by $50 million primarily as a result of our subscriber loss trajectory. As a result of our ongoing expense discipline and management, we are able to maintain our adjusted operating income guidance despite this decline in our service revenues guidance. In addition, we are increasing the midpoint of adjusted EBITDA by $25 million. Lastly, now that we are more than halfway through 2023 and given our plans for the remainder of the year, We are tightening the ranges of service revenues, adjusted operating income, and adjusted EBITDA. Our guidance for capital expenditures remains unchanged as we are executing our 5G mid-band deployment as planned. I will now turn the call over to Michelle for a quickie. Michelle?

Thank you, Doug, and good morning, everyone. I'm pleased to report on TDS Telecom's second quarter results and highlight that we are on track to meet the goals we laid out earlier this year. Before getting into the quarterly results, I'm excited to share that the federal ACAM program has been extended. This is fantastic news for our company. It will provide an additional 10 years of revenue support through 2038 in return for us delivering increased speeds of 100 megabits down and 20 up to our ACAM addresses. While important program details remain under review, We believe this is a favorable outcome for these customers and provides the fastest path for TDS Telecom to take fiber deeper into our communities. Now let's jump into our quarterly results starting on slide 17. Here you can see our strategic areas of focus. We expect investments in these strategic priorities to drive profitability and improved returns over time. ultimately strengthening TDS Telecom's financial and market position. Moving to slide 18, let me update you on our progress towards achieving our longer-term goals. We are delivering fiber service addresses in line with our expected cadence. We deployed 41,000 marketable service addresses in the quarter, bringing our total to 66,000 this year through June. Similar to past years, we expect to see a ramp up in delivery in the back half of the year. That ramp up started in July as we added over 20,000 addresses. We are well positioned towards hitting our goal of 175,000 service addresses for the year. Longer term, we are targeting 1.2 million marketable fiber service addresses by 2026. We ended the quarter with 648,000, so we're making good progress towards achieving that goal. We are also targeting 60% of our total service addresses to be served by fiber by 2026, and we ended the quarter with 41%. This reflects progress in growing fiber through our expansion markets, as well as fibering up our incumbent markets. Specifically, by 2026, we plan to serve half of our ILAC addresses with fiber. At the end of the quarter, 38% of our ILAC was fibered up. And finally, we're expecting to offer speeds of one gig or higher to at least 80% of our footprint by 2026. We finished the quarter with 68% at gig speeds. We continue to believe these targets are achievable, notwithstanding the recent reduction in our capital expenditures that I'll discuss in a moment. We are pleased with the pace of our fiber builds and with our fiber expansion results so far. It continues to validate our long-term business case expectations of low to mid-double-digit returns. We're successfully navigating challenges in getting our builds completed, and with about 100 communities in various stages of development, we can shift and pace our construction when necessary. On slide 19, you can see that we are growing our footprint with a 9% growth in total service addresses year over year. Shown on the graph on the right, we see increasing demand for higher broadband speeds, with 74% of our customers taking 100 megabits or greater, up from 68% a year ago. We continue to increase the availability of gig plus speeds, and we're now even offering 8 gig speeds in certain markets. Customer take rates of these feeds are growing, with 13% of our customer base on one gig or higher at the end of the quarter. Our broadband investments are driving positive results, including an 8% increase in total residential broadband revenue. As shown on slide 20, we experienced a 5% increase year over year in total broadband residential connections. Average residential revenue per connection was up 4%, due to price increases and overall product mix partially offset by promotions. As shown in the chart on the right, we also had a 4% increase in residential revenues across all of our markets, and this was partially offset by a decrease in commercial and wholesale revenues. Expansion market residential revenues were up to $18 million in the quarter. This aligns with our expectations of steady revenue growth following the timing of service address delivery as penetration ramps in these new markets. Residential wireline incumbent and cable revenues increased year-over-year due to price increases and growth in broadband connections, partially offset by promotional activity and a decline in video and voice connections. Commercial revenues decreased 10% in the quarter, primarily driven by lower CLEC connections. And lastly, wholesale revenues decreased 4% for the quarter, primarily due to lower special access revenue. On slide 21, we can see that total revenues increased 1% for the quarter. Cash expenses increased 5% in the quarter, mainly due to our growing fiber program. As a reminder, costs to support launching our fiber expansion markets include direct costs such as sales, marketing, real estate, and technicians, in addition to shared services. These costs are incurred upfront and prior to generating revenues. As we expected, the increased cash expenses resulted in a decline in adjusted EBITDA of 9% for the quarter. Capital expenditures of $132 million were up from the prior year due to increased investment in fiber deployments this year. Keep in mind that these investments support our multi-year strategy and our goal of increasing free cash flow and return on capital over the long run. Slide 22 shows our revised 2023 guidance. We are forecasting total telecom revenues of 1.03 to 1.06 billion, which is unchanged from last quarter. Adjusted EBITDA is now expected to be between 270 and 300 million in 2023, an increase from our previous range. Adjusted EBITDA reflects our fiber program upfront spending along with our focus on cost management. Disciplined spending across the organization is driving the increase in our guidance range. It's important to note that by the end of this year, we expect almost all of our fiber expansion markets to be initially launched. As our fiber program builds mature and we increase our broadband penetration, we expect the pressure on adjusted EBITDA to lessen. We are also now modestly reducing our capital expenditure guidance range to be between $475 and $525 million. We do not expect this to impact our Fiber Service Address delivery goal this year. Going forward, we will size and pace the timing of our capital spending commensurate with our financing plans, which we expect will result in a reduction in capital expenditures in the near term, while still expecting to achieve our 2026 Fiber Program goals. Before signing off, I want to briefly reiterate our response to recent media accounts related to lead-covered cables. We currently estimate that we have approximately 10 miles of lead cable, almost all of it in buried conduit. This is a very small percentage of our entire network. We are continuing our assessment and will work with the industry to determine next steps. I also want to thank the team for all of their hard work. It takes alignment and dedication across the entire organization to execute on our strategy. So each one of our associates is contributing to TDF Telecom's success. And now I'll turn the call back over to Colleen.

Okay, before we open up for questions, I do want to remind everyone that our focus today is on the quarter, and we will not be taking questions related to the review of strategic alternatives. Operator, we are ready for the first question.

Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll take our first question from Rick Prentice with Raymond James. Your line's open.

Thanks.

Good morning, everybody.

Can you hear me okay?

Good morning. Yep, good morning, Rick.

Yep, great. Thanks. Well, I'm glad you guys are looking at the strategic alternative review. Appreciate that. My question is not about that, but related. First question, regardless of the outcome of the strategic review, have you thought about any further about breaking out the tower segment as a separate standalone business and working a contract between tower company, as you mentioned, the fifth largest tower company and the wireless company, regardless of what the outcome is, that would seem to make kind of sense. So maybe the first question is,

outside of the strategic review any updated thoughts on creating a tower segment with anchor rent hey rick it's lt good morning um so thank you for the question the the way that we're approaching this right now is we as you can tell from both my comments as well as austin's comments we see a lot of value in that tower business Our co-location rate is below that of the major providers. We see a lot of long-term growth in that asset, even though we have seen a bit of a slowdown here more recently. We do plan over time to share some more information on that segment as we go. So, for example, you heard a little bit of new information from Austin today around the tower business. The specific question of carving it out or treating it as a separate business, that's something that we're evaluating. We're not in a position to comment on that today. But we do plan on providing incremental details about the business over time. Hopefully that somewhat answers your question, even if it doesn't fully answer it.

Right. I know I was dodging that line there about asking about the strategic review, but I thought it was a fair way. It was very elegant.

I thought it was extremely elegant.

The second question, obviously, gross ads. It's been a tough gross ad environment out there for the industry. Any update as far as what you saw in July as far as turn and gross ads, particularly on postpaid phone?

Yeah, Rick, good morning. We can't comment fully on Q3. I'd say we've seen a fairly similar trajectory in July that we saw in Q2, so no drastic changes so far.

Okay, and the last one for me, obviously a bright spot is the fixed wireless business, and this is just the low band. You're going to be rolling out the mid band. The C band clears in your area in December. How should we think about your total addressable market? How many households maybe have you already got deployed with C band, even though it's not lit? What are your plans? Some of your larger peers. have kind of laid out some targets and have made great progress towards those targets with even more markets. So just trying to help us understand sizing the addressable market of fixed wireless, where you're at, and kind of where you plan.

So I'll have Doug kind of give you some of the specifics. And then I'm actually going to have Mike talk a little bit about what we're doing to address capacity in fixed wireless, because that's a fundamental is that that's a fundamental driver of addressable market. And addressable market isn't just where you can have a signal reach. Addressable market is where you can have a signal reach with the capacity necessary to provide a high-quality experience. So, Doug, maybe I can ask you to tackle the first question and, Mike, you tackle the second. Sure.

And as a reminder, Rick, our total addressable market for fixed wireless today over low band is 13 million homes in our footprint. And when we look at our multi-year mid-band rollout, we expect mid band to get to four to five million of those homes. And that may be adjusted over time, but we're pretty excited about where that's going.

Hey, Rick. It's Mike. Thanks for the question. So we're just now starting to bring up our DOD spectrum. And that immediately gives us a capacity increase to the low band service that LT mentioned. At the same time, we're prepping the radios and the equipment so that we can activate C-band towards the end of the year. So that almost doubles our capacity to support the growth. But in addition to that, we're working with our marketing team to find the right balance of pro install external antennas versus internal internal antennas and glass mount antennas. Getting that mix right further extends our capacity. And then there's things we're working with our vendors on to, one, lower the cost to add capacity, as well as feature enablements that are specific to FWA capacity. So right now, we're not concerned about capacity. We're managing it like we manage capacity on our mobility product.

Great. That's helpful. Thank you. Okay, next we'll go to Phil Cusick with JP Morgan. Your line's open.

Go ahead, Phil, your line's open. You may be on mute. Go ahead, Phil.

Okay, we'll move to the next question. Next we'll go to Simon Flannery with Morgan Stanley.

Great, thank you very much. LT, on the build out of the mid-band spectrum, it sounds like you're hanging two different antennas for the DoD spectrum and the C-band with the one touch. Any line of sight to an integrated antenna and how that might be helpful in terms of efficiency of use? And I guess a related question maybe for Austin is, I appreciate the color on the competitive positioning of the towers. How do we think about capacity? You have one and a half tenants right now. Are most of these towers, can you go to two, three, four tenants over time? Any color on that would be great.

So, thank you, Simon. I'll have Mike touch on the single enclosure, single radio. It's certainly something we've been working closely with our partners on developing. So, Mike, maybe you could give a little bit of color on that.

Yeah. Hi, Sam. Thanks for the question. We're working with both our vendors on that product and I don't want to commit them to a date publicly, but we feel it's pretty close, and we'll integrate that into our deployment plan so that we can take advantage of it just as soon as it's available.

Thank you. Simon, this is Austin. On your second question, yes, our towers do have incremental capacity. We believe the vast majority of them have incremental capacity from where they are today. In addition, there's always the option to invest, do a structural modification to add capacity to the sites as well. So we feel good about where we are there. Right.

And any quantification of how long and how much the remaining T-Mobile churn is?

I'm not going to provide any more detail right now.

Okay. Understood. Thank you.

Okay. Next we'll go to Michael Rollins with Citi. Your line's open.

Thanks, and good morning. When you look at the totality of wireless performance, are there geographies or segments where you're seeing material growth in subscriptions, postpaid phone subscriptions, and revenue versus maybe other areas or products or verticals that it's tougher, such that when we look at the total portfolio performance, it's actually not a fair representation of what you may be experiencing when you go one or two levels deeper.

Hey Mike, it's good to hear from you. I'd answer that question a few different ways. I mean, certainly when you look at different products inside of our business, we're seeing certain areas of the business with really attractive growth. So we certainly talked about fixed wireless, in a fair amount of detail. That's one area where we're seeing a lot of growth. In our business segment, our IoT business is up substantively year over year. We're seeing really good growth on the private networking space. And by the way, the private networking space, it's also helping us pull through professional services. And so that's an attractive growth area for us. We've talked mostly on fixed wireless. We've talked mostly about the consumer side, but we're actually seeing some really attractive growth on the business side as well. We just recently launched a failover product that we're seeing really nice growth on, and if you're trying to follow the growth in our financial statements, a fair amount of the growth on the business side doesn't actually show up in our subscriber count because it's being sold through indirect channels. And so it'll just show up in our revenue count. And so there certainly are some substantive bright spots. From a geographical perspective, what I would highlight is that 50% of our footprint does not have cable competition in it. We are seeing increased pricing competition from cables. And where we see that, it creates incremental competitive challenges. And so as you would expect, where we don't see that increased competitive challenge from cable, we see some better subscriber results. So it's different ways of kind of getting at your question. We certainly have plenty of attractive pockets. But broadly across the business, we do see gross ad challenges. I'd also just point at churn. right where last year we were quite aggressive with our existing same as new promotions those moved our in contract rate from mid 50s 57 58 percent up into the low 60 percentile of in contract customers and where we have those customers in contract we see far better churn profiles So it certainly is not ubiquitous performance completely across all our products and all our footprints. You've got highs and lows as you would expect. Hopefully that gives you a sense, Mike.

Thanks. And I just had a follow-up question. So I recognize you can't speak to the Strategic Review of U.S. Cellular per your prior comments, but the language was very specific that TDS is also performing a Strategic Review of U.S. Cellular. Should investors take that to mean that TDS as a company expects to still be an outstanding independent company regardless of what happens to U.S. Cellular? Or does TDS also, the future of TDS, get incorporated into this review for U.S. Cellular?

It's an incredibly elegant way to try to get me to talk about the release, but I'll just point you back to the 13D. I think the language in it is about, I think it's as clear as we're going to be, and I think it probably provides as many details as we're going to at this point. So I would just refer, I would reference you back to that document for that question.

Thank you.

Thanks, Mike. Next question. Thank you. As a reminder, it's Star 1 if you have a question. Next, we'll go to Sergey Dolevsky with Gamco Investors.

Good morning, guys. Thank you for taking the questions. LT, my first question is around the business and enterprise side. Obviously, it's a growth vertical that you see out there for the company. I guess as you look over the last 12 months, I guess, what has been the largest achievement on that front? And also, what are your expectations for this vertical over the next 12 to 18 months? What would you consider a success? And at what point do you expect this business to make a more meaningful contribution to your sales results?

Good morning, Sergey. So business is an interesting space for us because the If I take a step back from our business, and I will answer your question, but if you take a step back just from our business and you look at 5G, with the exception of fixed wireless, the emerging use cases that are going to monetize the investments that the industry has made in 5G, increased speed, better latency, those use cases are increasingly going to be on the enterprise side. And so whether it is connected manufacturing, whether it is connected health, most of those initial use cases, digital twins, those are going to leverage enterprise. And so we made a pretty substantive investment in enterprise distribution so that we could be ready for that. And we're seeing the payoffs from that investment and distribution. Particularly in areas that I mentioned before, think private networking, think IoT. And I'll point particularly, you asked for a specific accomplishment. I'm particularly pleased with what we've been able to do in the utility space. So we've signed a variety of different private networking deals with utilities, helping them manage their networks more securely, providing them with more control, smart metering solutions. And this is a particularly interesting space because utilities don't necessarily compete against one another. And so a solution that we provide to one utility, they can talk about with others. And so we've actually seen pretty significant momentum in that space. And I expect that to continue. So if I were to point at one thing, it would be utilities. More broadly, I think enterprise is where you're going to see those 5G use cases emerge. We've leaned into enterprise while many of our competitors have actually pulled back, and I believe that positions us well for the future. The challenge, of course, is that there has been a long, I'd call it, hangover from COVID disconnects, particularly in the education space. And so what occurred during COVID is a lot of money flowed from the government into school systems to enable them to connect students, teachers, administrators, remote. That created a lot of connections for U.S. cellular, for the industry as a whole. That funding has dried up. And so what you've seen is you've seen school districts pulling back on some of those connections that they previously had funding for. And so the overall momentum and the trajectory that we're seeing in the business is attractive, even though the subscriber counts appear challenged because of those EDU disconnects. So getting to the final question that you asked, what's the metric that we're going to focus on? The metric I'm focused on is revenue. I expect to see revenue growth in that segment, notwithstanding some of these lower ARPU disconnects. I expect that the IoT revenues that we're seeing, the private networking that we're seeing, should continue to increase revenue in that space. And I'm optimistic that we're going to be driving that in the coming course.

Great. My other question is around partnerships and network sharing, because I think A number of times you talked about the company exploring opportunities for more robust partnerships around infrastructure and more specifically network sharing. Obviously, we see a lot of network sharing deals in Europe, Latin America, in North America. Maybe they're not as frequent, but I think Bell and Telus in Canada have a very robust partnership. So my question is, uh if you could provide an update uh as far as your efforts on that front and also more broadly is there a way for your seller to better align itself with one of the national providers in a value enhancing way uh using network sharing or other partnerships and how you guys look at that going forward thanks sergey so the interesting thing about network sharing is that it's it's a single term

that covers an incredibly broad spectrum of possible methods, partnerships, arrangements, whatever you want to call it. Roaming is a form of network sharing. And so clearly, we engage in network sharing partnerships with our roaming partners, as do the other carriers. We're in consistent communication with other folks in the industry to explore alternatives I'll go back to comments I've made on these calls in the past, which is that I simply don't think that it makes economic sense to build four or five duplicative 5G or 6G networks in rural America. We feel we have a fantastic set of assets in rural America, whether it's the spectrum that we own, the network that Mike has built out, the towers that Austin is operating. And we see opportunities to use that in a creative fashion. And so I would go back to some of the comments Austin made about some of the network equipment and network elements that we're actually offering up to people that co-locate on our towers. We have the opportunity to offer shelter space or generators or even discussing backhaul sharing. Those are elements of network sharing that we're in the middle of doing, and we've actually signed some agreements there. They're very small, right? It's on a tower-by-tower basis sometimes, but it's another way of thinking about network sharing. And so I think the conversations are ongoing. We're seeing continued interest in, for example, that tower sharing construct. Beyond that, I probably can't comment on anything specific, sir.

Got it. Thank you. And my last question is for Michelle. So obviously, you commented about the ACAM, on ACAM program extension. And it seems you have a positive view of the program. Could you maybe provide more color about what this could mean for TDS going forward, what the implications are, what the implications are for potential revenue and award opportunities under this program going forward.

Yeah, thank you, Sergey. Yeah, so the ACAM program is seen as a benefit to TDS Telecom. We're very excited about this. We've been working with the FCC for a long time on trying to get this enhanced program over the finish line, and so we're just very pleased that it's happened. There are a lot of program details that are still being reviewed. We know the high levels. As I mentioned, this program is going to extend the revenue support for an additional 10 years. So the current ACAM program was scheduled to go through 2028. This will take the revenue support out through 2038. And in exchange for that, though, We have to deliver higher speeds to all of the addresses that are eligible for the ACAM program. So that means that we have to get speeds of at least 100 megabits down and 20 megabits up. That is the same requirement as part of the BEAD program. And those builds have to be done, it's our understanding, by the end of 2028. So that also the builds on the ACAM program will align with the build timeline that we're expecting for the BEAD program. So that's what we know right now. We will be working closely with the FCC to get our company's specific offers and obligation requirements, and this will all happen over the next couple months. And then that will allow us to do a little bit more evaluation and be able to talk more specifically about exactly what it means for us. But in general, you know, this is a program that's already existing. We've been part of it for many years. It's a wonderful thing for TDF Telecom and for our customers, and by keeping this program going and extending it. We really think this is going to be the best way for us to get to work and start to serve those customers in the most rural parts of our markets with higher speeds as quickly as possible.

Got it. Thank you. Thanks, Sergey. Next question.

Okay, next we'll go to Phil Cusick with J.P. Morgan. Your line is now open.

Hi, guys. Sorry, I missed a little bit of the call, but I'm trying to catch up on the transcript. I wonder, LT, you've been at US Cellular for three years. And can you talk about the success of the shifting pricing and promotion strategies in that time? You know, your in-contract mix, as you said, is up nicely. Insurance is down. But it seems like you continue to struggle with gross ads. And despite wireless growing better over the last few years than we'd expected. So can you just talk about sort of where we are in that, you know, go-to-market strategy and what the company is doing to try and push that? And as you look at the budget and plan for this year,

um where performances sort of differed and and the drivers of the guide down thank you hey phil good to hear your voice um we are when we think about our pricing and promotional structures you don't do so with subscribers in a you know in a vacuum you don't only look at how you're doing from a subscriber perspective we've talked from the very beginning that what we were trying to create both with our pricing and promotional structures, but also with our regionalization efforts where we can test and trial different constructs, is we wanted to have a strategy that properly balanced subscriber results with financial results. And so when I look at that balance, given the context, the overarching context of the industry, intense competitive environment, intense pricing pressures across the industry. If I look within that context, I'm quite pleased about the balance we've been able to strike. The gross ad performance is not where I want it to be. We've been fairly public about that, and it's in every statement that we put out there, and I'll continue to say it. I would like to be able to drive stronger levels of gross ad performance. However, the level of investment that we feel like it would take at this point to really meaningfully bend the curve on gross ads is not a prudent investment that we think is worth doing. I would contrast that with churn. We made a substantive investment in churn last year with our existing same-as-new plans, getting folks back under contract. There's a fair amount of money that we spent behind that. However, you see the benefits that we're gaining this year in year-over-year churn improvement. And so purely on a subscriber gross ad perspective, still a lot of work to do. In the balance between subscriber results and financial results, you'll see from our guidance, we slightly expanded our operating cash flow guidance this year. We're trying to strike that correct balance between subscriber results and financial results. And from that perspective, I'm pleased, and I think the team's executing well.

And has gross ads been the driver of the slower revenue and the downgrade in the guide today?

Yeah, I mentioned on the call, Phil, it's volumes and mostly gross ad driven on post-paid and to a lesser extent prepaid.

Okay. If I can ask one more, can you remind us of your ownership of the Verizon LA asset and how much cash that has brought in in the last year? Thank you.

Our total distributions last year, 2022 full year, were 145 million. That includes LA along with nine other partnership investments. We expect that to go up slightly this year. LA is about 40% of that total.

And what's the, I assume that there's essentially no tax basis on those investments?

Well, it's low. And by the way, LA's distribution is going up this year. as a result of significant capital expenditures in the fourth quarter of 2022. So we do expect that to go up. And yes, the tax basis is low.

Thanks, guys.

There are no further questions at this time. I'll now turn the call back over to Colleen Thompson for any additional or closing remarks.

Okay. Thanks, everyone, for your time today. Have a great weekend.

This concludes today's conference call. You may now disconnect.