Q4 2019 Earnings Call
At this time all participants are in listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During this session. You want me to press Star one on your telephone actually require any further assistance. Please press star Shield. Please be advised that today's conference is being recorded I wish I like to has a comfort.
Sure over to your speaker today Jane Mckenna. Please go ahead.
Thank you Michelle good morning, everyone and thank you for joining huh.
Want to make you all aware of the presentation, we've prepared to accompany our comments. This morning, which you will find on the Investor relations sections of the Tds and U.S. only website.
With me today and offering prepared comments are from U.S. cellular Ken Meyers, President and Chief Executive Officer.
Oh Chambers, senior Vice President and Chief Financial Officer.
Entrant Tds Telecom, Jim Buckman, President and executive officers, Chief Executive Officer, and Vicki Villacrez, Senior Vice President and Chief Financial Officer.
This call is being simultaneously webcast on the T.D.S. and U.S. cellular Investor Relations website <unk>.
We see the websites for slides referred to on this call, including non-GAAP reconciliation.
We provide guidance for both adjusted operating income before depreciation and amortization or or death, and adjusted earnings before interest taxes, depreciation and amortization or even though the high like the contribution of U.S. Cellulars wireless partnership.
As shown on slide to the information set forth in the presentation and discussed during this call contains statements about expected future events financial results that are forward looking and subject to risks and uncertainties. Please review the safe Harbor paragraph in our press releases and the extended versions interest you see filing.
He asked and U.S. cellular filed their FCC form 8-K yesterday sitting today's press releases and please note that we'll be filing or if you see forms 10-K on Tuesday February 25.
In terms of our upcoming IR scheduled on slide three we'll be attending the Raymond James Institutional investors conference on March 2nd in Orlando, and the work and family Technology Media and Telecom Conference on March six in San Francisco.
I will be doing a non deal road show with strategic a securities importantly on March six.
And I should know we have an open door policy. So if you're coming to Chicago would would like to meet with members of management or the IR team. Please let us know and we will try to accommodate you calendars for me.
Also I did want to highlight that we have yet again announced a increase in our dividend rate for 2020. This being the 46 consecutive year that we've raised our dividend.
And before turning the call over amount to remind everyone that even though our E auction a if you see Oxford whatever three has ended.
We are still any assignment phase and we were unable to respond to any questions related to any FCC auction and now ill turn the call or that Ken Meyers can.
Good morning.
Turning to slide five.
We're talking about 2019 in 2020.
First want to take a step.
Some of our multiyear investment.
Positioned us to better serve our customers into the future.
Start with.
Well I cannot comment on too many free.
You want to point to success, we've had an option one and one a true where we secured important.
For Fiveg plans.
In terms of the customer experience you entered introduction of led Luminaires planned there's been a game changer for just under industry.
And as much as I see you worry about the long term economic.
Got it plans.
Energy do love.
Even from either all satisfaction.
And the migration to the how your price plans and help drive increases in average revenue per user.
To support the increased data usage, we have continued to best known it worked at best.
Other investments we've made include brand refresh sort of them, bringing Curtis worries.
And design to broaden our appeal in the marketplace.
Also enhanced or websites that customers have a better and faster on my experience, giving us a platform for future growth and that's true.
Also are very positive developments in our blooming economics.
Oh boy over 80 technology is broken down the CDMI GSM only for me.
And today, we have roaming agreements all the big four carriers as a result, you have seen roaming traffic and moving revenues right.
<unk> expenses.
Right.
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We've also invested in their culture, you know, which are frontline associated to the delivered.
Indeed customer experience U.S., so there's no need for the marketplace with numerous programs to ensure our exceptionally high levels of engagement remain at our culture continues to drive.
Resources are secret sauce.
Greatly appreciate all of their efforts.
As mentioned earlier, we continue to invest in the network can be capacity and the ongoing growth in demand and to improve speeds to.
We are completing the final stages voice over LTE U rule, and beginning or multi year.
Gee.
Her initial fiveg rollouts in Twentytwenty use 600 megahertz spectrum.
Were paid off.
With millimeter wave spectrum to increase speed, it's important future use cases.
These charts on the stage show, how well meeting or customers ever increasing demands for do we had at the same kind of manage the business to drive annual increases an adjusted.
Earnings before taxes, depreciation and depreciation and amortization.
Continue to make investments for the long term heating voice over LTE network modernization spectrum in Fiveg.
Turning to 2019 slide six you are targeting 2019 to protect our customer base.
Smartphone connections grew by 71003 year.
For the full year Hansen churn increased slightly the previously or but still look indicating strong levels of customer satisfaction.
And this ultra competitive Merck.
I look for your where he was growing grows.
We reported a 2% increase in service revenues for the are driven by 2% increase in postpaid average revenue per customer and a 6% increase in prepaid average revenue per customers.
Factors that drove this growth include a shift in mix connected devices to smart.
Customers migrating to a higher prices service.
And increases the penetration of device protection plans.
Also contributing to the growth in service revenues was a 13% increase in roaming revenue.
For the third year to roll, we tightly manage costs throughout the company.
For the year cash operating expenses Rose just board tense one person.
He was this was a companywide initiative that has provided $500 million Julie the cost savings over the last three years and we believe we have more opportunities and 20 Tony.
One highlight was our ability to manage network costs, given the impact from increased data usage.
Listen perspective for the full year data usage from 39% well systems operations expenses were essentially flat.
Quite an accomplishment.
The combined result.
These actions as we grew adjusted EBITDA Hypersound.
29 team.
[noise] network quality remains core to our customer satisfaction strategy.
Only 19, we continue to invest in the network to accommodate increased usage into enhances the customer experience.
We ended the year with multi technology available nearly 70% of our customers and deployment to the final markets is expected to be largely completed 2020.
And we began to deployed Fiveg technology in a high and was in Wisconsin.
Our first by GE markets with commercial launches planned the next couple of months.
Now I'll turn the call over a dozen Travers, who will take you through the quarter results Doug.
Thanks, Ken and good morning, everyone I want to talk first about postpaid handset connections shown on slide seven.
Postpaid handset gross additions for the fourth quarter were 130000 down from 136000, a year ago due to aggressive industrywide competition I'm more service plans and devices.
Postpaid handset net additions for the fourth quarter from positive 2000. This.
This was down from 20000 last year driven by the declining gross addition, and higher churn I'll touch more on churn in a moment.
On a sequential basis, both gross and net additions improved due primarily to the normal seasonal trends.
In addition to smartphone gross additions we continued to have existing had said customers upgrading feature phones to smartphones.
As you can see.
And right size, the slide including the upgrades.
Total smartphone connections increased by 27000 during the quarter.
By 71000 over the course of the past here.
That helps to drive more service revenue given that ARPU for smartphone is about $22 more did ARPU for feature phone.
Next I want to comment on postpaid churn rate shown on slide eight.
Postpaid handset churn depicted by the Blue bars was 1.11% for the fourth quarter of 29.
Higher than last year, driven primarily by aggressive industry wide competition.
Total postpaid churn, providing handsets and connected devices.
1.38% for the fourth quarter 2019, higher than a year ago and flat sequentially.
Now, let's turn to the financial results.
Total operating revenues for the fourth quarter 1 billion essentially flat year over year, well service revenues increased 9 million.
Retail service revenues increased by 3 million to 666 million.
The increase was due largely to higher average revenue per user, which I'll cover on the next slide.
Inbound roaming revenue was 42 million.
That was an increase of 11% or 4 million year over year, driven by higher data volume.
Finally equipment sales revenues decreased by <unk> million or about 3% year over year. This was primarily driven by a decrease in the number of devices sold.
As I mentioned earlier there was it the there was a decrease in gross additions activity year over year that impacted device sales.
In addition, we are continuing to see that existing customers are holding onto their devices for increasing the longer periods, resulting in a slight decrease in upgrade transactions.
Now a few more comments about postpaid revenue shown on slide 10.
Average revenue per user or connection with 40 657 for the fourth quarter up 99 cents or approximately 2% year over year.
The increase was driven by several factors, including a higher mix of smartphones relative to connected devices.
I shift in service playing mix to higher price plans.
<unk> increased device protection revenue.
43% of our postpaid connections are now an unlimited plans versus 27% year ago.
Partially offsetting these increases were higher promotional sales costs.
Also there was a decrease in Universal service fund revenues, resulting from the Fccs December 2080 ruling that revenues from text and multimedia messaging services are no longer assessable under the Universal Service Fund.
As a result, this year you exercise of stock charging customers and will no longer paid the FCC U.S. have fees on these revenue streams.
Because this change also affected general and administrative expense by a like amount is neutral to earnings.
Looking through this change ARPU on a comparable basis increased five dollarsthirty nine year over year versus the reported increase of 99 cents a pretty strong result.
On a per account basis average revenue grew by $1.39 year over year. Excluding the you accept impacted I just discussed ARPA increased by $2.42 or too precise.
Let's move next to a profitability measures.
First.
Not to comment on adjusted operating income before depreciation amortization and accretion and gains and losses.
To keep things simple I'll refer to this measure as adjusted operating income.
As shown at the bottom of the slide adjusted operating income was 181 million up 6% from a year ago.
Correspondingly margin as a percentage of total operating revenues was up one percentage point to 17%.
For those watching service revenue margin. The current quarter result was 24% did increase of one percentage point year over year.
As I commented earlier total operating revenues of over 1 billion were essentially flat year over year.
Total cash expenses were 871 million decreasing 10 million or 1% year over year.
Total system operations expense decrease year over year.
Excluding bromine expense system operations expense decreased by 2%, despite a 47% growth in total data usage on our network.
Roaming expense decreased 4% year over year, primarily due to lower rates, partially offset by 50% increase in Austin that data usage.
Cost to be crippen sold decreased to due to a decrease in the number of devices sold and a higher mix of used divide it by sales, which primarily represent the resale devices returned are treated him by customers tour device service program vendors.
SG, they expenses increased 1% year over year due to higher selling and marketing costs.
Shown index is adjusted EBITDA.
Starts with adjusted operating income and incorporates the earnings from our equity method investments along with interest and dividend income.
Adjusted EBITDA for the fourth quarter was 222 million up 4% from a year ago.
The improvement is due to the increase in adjusted operating income.
This was partially offset by slight decreases in equity in earnings of unconsolidated entities as well as interest and dividend income.
Adjusted operating income and adjusted EBITDA I do not include depreciation amortization and accretion expense.
In connection with the network modernization and Fiveg initiatives, we are upgraded several of the network equipment elements.
This results in the recognition of accelerated depreciation on certain of the assets be replaced as a result, depreciation amortization and accretion expense was up 10% from a year ago.
Now, let's turn to slide 13, Reashure full year financial results.
Total operating revenues from 4 billion, an increase of 55 million or 1% year over year.
This was driven by increased retail service revenues due to higher average revenue per user.
Also contributed to the increase was higher inbound roaming and Howard rental revenues.
Total cash expenses were 3.2 billion, an increase of 13 million year over year. This was due primarily to an increase in selling general and administrative expenses driven by information system initiatives as well as the increase in bad debt expense.
System operations expense was essentially flat, despite a 39% increasing data usage on our network and a 33% increase in off network data usage.
Adjusted operating income and adjusted EBITDA grew 5%. This is primarily a true primarily driven by the increase in operating revenues.
Now I will turn the call back to cap.
Thanks.
14, our plans for the year 2020.
In order to strengthen our base will build in a number of initiatives already in the works. For example earlier this month, we initiated service and Sioux City, Iowa in Northern Wisconsin, expanding our addressable markets.
We will continue to build upon the branding work, we introduced last year, and we'll continue to evolve their plans and pricing, but in a economically risk.
Manner.
In terms of revenue growth unlimited plans are still only 43% of our base. So we expect customers to continue to migrate to these plans.
We also expect customers to purchase additional services like device protection.
We still have 396000 feature phones on our network, which provides us the opportunity to migrate these customers to smartphones also.
Fiveg should help to address customers growing demand for more data and faster speeds as well as create opportunities for new services.
I am also optimistic about the opportunities in the B to B marketplace, whether you called smart city or in a manner net of things interest is growing.
And fixed wireless broadband continues to be complementary products for their customers, who do not have access to adequate broadband service today.
Customer expectations are always changing.
We are rolling out new programs and tools to ensure that we better understand and engage with our customers are using data and analytics.
Continue to utilize life cycle management programs and we are embarking on a number of new issues initiatives like personalization that can be both predictive and prescriptive.
Continuous evaluation of the format and location of our retail stores is even more important as customers continue to change their shopping preferences.
Turning to slide 15, 2020, you will continue to foster.
Associate engagement, especially since our associates, who are you a cellular is competitive advantage.
And lastly, we will continue to invest in the network to meet ever increasing demand.
Finish the less vultee launches.
Mr. down the road to Fiveg.
Doug will provide greater detail or capital spending plans and just a minute or so.
In closing Im very proud of this organization, we've built a great Foundation.
We have the best associates, the industry that team and the opportunities in front of US have me excited about 2020.
Now, let me turn the call back to Doug.
Thank you Ken.
I didn't for 2020 is shown on slide 16 for comparison were also showing our 29 <unk> actual results.
First I want to comment on a change in our revenue guidance approach.
Other than provided guidance I total operating revenues, which includes both service and equipment revenues. We are provided guidance on service revenues only.
Variations equipment revenues typically have a corresponding impact on cost of equipment sold and as a result or less impactful to our profitability measures and therefore, we believe that service revenues are the more meaningful revenue measure for guidance purposes.
For total service revenues, we expect a range of approximately 3.0 to 3.1 billion.
This reflects our expectation of a continued highly competitive environment.
We expect adjusted operating income to be within a range of 775 to 900 million and adjusted EBITDA within a range of 950 million to 1.75 billion.
This guidance reflects our estimates from low single digit growth in revenue and increased that reclassed related to our fiveg deployment and ongoing network modernization programs, partially offset by the impact of cost savings initiatives.
For capital expenditures the estimate is in a range of 852 950 million.
This year in order to provide more transparency and actual 2019 and estimated 2020 capital expenditures, we have provided a breakdown by major category.
There's a lot going on in the network space in 2020, we will be completing our organizational both the rollout continuing our low band Fiveg rollout and hopefully beginning our targeted millimeter wave fiveg deployment.
Admittedly this is a large increase and we could be affected by potential constraints on the availability of network equipment and services.
As a result, we may not be able to complete all of our plans this year.
In that case, we would be at or even below the low end of our guidance.
Now I will turn the call over to Jim but.
Thank you Doug Good morning, I am pleased to be able to share with you that our transformation is well underway and our future at Tds Telecom is bright.
As can do I want to spend a few minutes, providing a little longer term perspective on the progress we have made and how our investments are paving the way for the future.
We are in a strong position today due to a number of growth focused initiatives that we had been executing on for over five years.
These initiatives include our fiber strategy.
In and out of our existing footprint and our acquisition strategy.
Our investments in fiber the home or not new in fact, we made a strategic shift away from upgrading copper and our most attractive island markets to deploying fiber.
Hogmanay did with superior products.
Hyper localized marketing and sales.
The success, we saw with this transformational change was the catalyst for US to develop then tests are out of territory fiber deployment strategy.
During 2019, we scaled up and now are out of territory strategy fiber strategy is in full swing. We now have approximately 230 fiber service addresses in the Hopper Vicki will go into further detail of where these are in the process.
Yes.
To address the broadband needs of our most rural markets. We advocated relentlessly and then secured over a billion dollars an ATM funds over the program period.
This is allowing us to bring higher broadband speeds to our most rural customers, which helps drive fiber much deeper into our network.
We also secured over 30 million in state broadband Greens over the past five years.
We bought her first cable company in 2013 and have continued to add to that park portfolio with smart cable acquisitions and tuck ins.
These acquisitions acquisitions, a natural extension of our broadband strategy and we have been able to leverage expertise and resources across our business to drive strong financial results.
Over the past five years, our cable segment generated $1 billion in revenue and $289 million in adjusted EBITDA, helping to drive growth and offset secular declines in our legacy business during that period, we improved our cable adjusted EBITDA.
Margin from 24% to 33%.
These charts show our investment thesis in physician is very different from our peers.
Turning to the specifics for 2019 for our wireline segment.
It was really all about fiber construction and launching new markets, both within and outside of our current footprint.
However, there was so much foundational work that was done you cannot see in our reported results.
Identifying additional markets in scaling up our organization to be able to execute on this program.
Today and for years to come.
We are successfully redeploying cost savings from our legacy businesses to investing in our broadband growth initiatives.
Our cable segment continues to perform well showcasing the success of our broadband strategy.
We purchased cable properties in attractive markets, which continue to provide a nice tailwind to our growth and we are very pleased with our cable acquisitions. The latest one continuum closed on December 30, Onest of last year.
The continuum markets located just north of Charlotte North Carolina represent just the type of demographics and household formation growth we find attractive.
Now I'd like to turn it over to Vicki to talk about full year in fourth quarter financials.
Okay. Thank you Jim and good morning, everyone.
Let me briefly highlight our financial results for the full year shown on slide 21.
Revenues cash expenses and adjusted EBIDTA, Our route rebel it heavily flat however, as Jim mentioned this result, massive significant transformation taking place across our business.
Consolidated revenues increased slightly from the prior year as revenues from our investments in both fiber expansion and cable have exceeded the declines we've had in our legacy business.
Cash expenses increased 1% every redeploy spending from our less legacy businesses through our growth initiatives.
Adjusted EBITDA was effectively the same as last year at 313 million.
On slide 22 for the fourth quarter, we see repetition of these trends.
Tds Telecom group consolidated revenues of 1% due to 4 million of growth in cable revenue, which was partially offset by the decline in wireline revenues.
Cash expenses increased 2%, mostly in the cable operations, which incurred closing costs related to the continuum acquisition.
As a result, adjusted EBITDA in the fourth quarter decreased 3% to 75 million from a year ago.
Capital expenditures increased 35% to 124 million.
As we continued to invest in our fiber deployment.
This quarter, we launched three new out of territory fiber market.
One in our southern Wisconsin cluster and two in our court Alain Idaho cluster and so far we're very pleased with how these markets are performing.
More to come on our total fiber program in a minute, but for now let's turn to our segments beginning with wireline on slide 23.
From a broadband perspective residential connections grew 3% driven by significant growth in or out of territory market.
We are offering up to one gig broadband speeds in our fiber market.
Across our wireline residential base.
30% of all broadband customers are now taking 100 megabit speeds are greater compared to 24% a year ago.
Helping to drive a 4% increase an average residential revenue per connection in the corner.
Wireline residential video connections grew 8% compared to the prior year.
Video is important to our customers approximately 40% of our broadband customers and our IP TV markets take video, which for US is a profitable product.
We expect to see increasing trends and this metric as we are seeing higher results in or out of territory market.
[noise] Tds Telecom continues to grow with overall, IP TV customer base by targeting markets and segments, they find value and bundling services.
Slide 24 summarizes the status of our multiyear fiber program as a result of our fiber deployment strategy over the last several years.
30% of our wireline service addresses are now serve by fiber.
This is driving revenue growth, while expanding the total wireline footprint.
Our current fiber plans include roughly 230000 service addresses.
I've watched about 50000 were turned up in 2019.
Plans for our current footprint are aimed at household growth and expansion and our current fiber market as well as overbuilding existing copper market.
Plans for out of territory markets currently include our Wisconsin, and Idaho clusters.
Which we have recently expanded to include the Meridian Idaho area.
We are planning for additional markets in the Pacific Northwest and are evaluating expansion in our major cluster.
Now looking at the wireline financial results on slide 25.
Total revenues decreased 1% to 171 million residential revenues increased 3% due to grow from video and broadband connection as well as growth from within the broadband product mix, partially offset by 4% decrease in residential voice connections.
Commercial revenues decreased 10%, primarily driven by lower see like connections and wholesale revenues were flat compared to 2018.
Wireline cash expenses were flat, we continue to see reduce cost of legacy services, partially offset by higher video programming fees.
Employee expenses were held flat as we staffed up to launch new markets, which were offset by a continued focus on cost discipline.
Maintenance expense increased as we incurred storm damage during the year.
Wireline adjusted EBITDA decreased 6% to 54 million due primarily to the reduction in commercial revenues.
Now moving to cable on slide 26.
Cable total revenues increase as customers continue to value our broadband services.
As Jim mentioned, we acquired continue on at December 31st So while we've included connections and our result, we did not have any income statement impact for 2019 other than closing costs.
Total cable connections grew 10% to 371000, which included 31000 from the acquisition and a 6% organic increase in total broadband connection.
Organic broadband penetration continue to increase up 100 basis points to 44%.
On slide 27, total cable revenues increased 7% to 64 million driven primarily by growth in broadband connections for both residential and commercial customers.
Our focus on broadband connection growth and fast reliable service has generated a 17% increase and total residential broadband revenue.
Also driving this growth is an 8% increase in average residential revenue per connection driven impart by customers rolling off promotion higher product mix.
And price increases.
Cash expenses increased 8% due primarily to additional cost related to the acquisition and plant maintenance.
As a result cable adjusted EBITDA increased 4% to 21 million in the quarter.
Now I will turn the call back to Jim to discuss our 2020 priorities.
Thank you Vicki.
I think of our investment priorities in three buckets network.
Products and people.
Broadband is our primary product and our investments are focused on fiber deployments strengthening our cable operations and meeting our first milestone of the ATM program.
We also will continue to innovate what we so in how we sell it.
Tds TV plus our next Gen cloud based TV service was launched this week and our first market.
And we will roll it out throughout 2020 in our cable and wireline operations.
Tds TV plus is a far superior products that makes it simple to find great programming with a recommendation engine and voice search that integrates traditional TV content with Netflix you too and other over the top apps. This service is available on our new set top box along with al.
Oh, and Android phones and tablets, we're also helping our customers lower their bill with a roadmap that will allow them to use the service on streaming devices in lieu of purchasing extra set top boxes, continuing on slide 29, a critical component of our success this year.
And into the future. He is our ability to identify markets, where our formula wins, we have built a robust model whereby we screen for criteria listed here and prioritize the most attractive markets extensive analysis goes into this along with deep.
Tailed financial modeling for each potential market.
Our models or it just didnt real time with actual results and key learnings.
Finally, I want to call out a significant strength of our organization and that is how lean we operate well we have a wonderful growth opportunities ahead of us we can't lose sight of the need to continuously take cost out of the legacy business. So we can redeploy those savings into our growth initiatives.
Before I turn it back to Vicki I want to express my thanks to our entire team. This is a team that has demonstrated time and again they can execute.
To 19 wasn't incredibly busy year full of lots of successes as well as key learnings energy confidence and enthusiasm everyone comes to work with each day has positioned Tds telecom to achieve great things for many years to come.
Back to you Vicki.
Okay on slide 30, we've provided our 2020 guidance.
We are forecasting total telecom revenues of 950 million to 1 billion compared to 930 million in 2019.
For wireline new fiber market growth will be strongly additive to continued growth in residential broadband and video video connections and revenues.
Commercial revenues and residential voice revenues will continue to decrease as well wholesale revenue.
We expect organic cable revenue growth in the mid single digits, reflecting continued strong growth in broadband.
I recently completed acquisition will add an excess of 20 million to revenue.
Adjusted EBITDA is forecast to be within a range of 290 to 320 million compared to 313 million in 2019.
Contributions from wireline broadband and video growth combined with growth from cable as well as cost reductions will continue to help offset pressures in the legacy wireline business unexpected fiber expansion cost in our new markets.
Capital expenditures are expected to be between 300, and 350 million in 2020 compared to 316 million in 2019.
Wireline Capex guidance includes 150 million dedicated to in and out of territory fiber deployment, a 50% increase over 2019 spending as well as 60 million in success based spending for both wireline and cable and approximately 30 million.
Allocated to the ATM program.
And now I'll turn it back over to Jane.
Thanks, Vicky and just a quick update on Oneneck It solutions.
Oneneck. It solutions continues to make very good progress driving revenues in strategic solutions, including multi cloud hosting managed services and professional services.
The one that team had a strong finish the year showing improvements in revenues, while driving operational improvements in its cost structure.
Oneneck is well positioned going into 2020 as they continue to leverage a multi cloud strategy with plans to roll out their next generation rely a cloud platform and plans to expand upon their public cloud strategy by offering additional platform based services via both rely a cloud.
As youre well.
Offering customer solutions architected around a highly secured framework will continue to be the cornerstone.
One next offerings.
And now Michel we'd like to open the call up for questions.
Okay. At this time, if anybody would like to ask a question. Please press star one on your telephone keypad that would be star one on your telephone keypad, let's just wait a momentum coupled with given a roster.
[noise] [laughter] first question comes from Ric Prentiss from Raymond James Your line is open.
Thanks, Good morning.
Morning.
Okay. A couple of questions first now that the the sprint T. Mobile merger seems like were almost to the finish line wanted us can kind of what do you think of the industry structure.
With dish coming into the fourth Fiveg, operator cable companies with their NVNO strategy ATM T. with its first in that project. How do you think about the industry structure competitiveness and where are you us cellular really fits in that and how you might work with that structure.
Well as a multipart question to start today off on.
Fascinating do we see how the industry keeps broadening its.
Its appeal right its addressable market, we started off voice voice data and voice the data video cable companies coming in yeah, I see I think were to see continued evolution of this and I think that how we fit just how we've always said which is our full.
Focused on mid sized rural markets.
We will continue to see a lot of headlines about different companies in different initiatives, but the reality is that most of their economics are driven out of much larger markets no.
Winning more and take a market you know.
Oriented to isn't going to change the economics of any large carrier that's where we.
Get our bread and butter, we will continue to focus on the needs of businesses government entities and consumers in those markets.
Okay.
Obviously capex was one that is trending up as you buy spectrum and deploy it.
Equipment supply aside capital is going up how do you think about return on capital what your hurdle rate for return on capital is and how you guys are going to achieve return on capital.
Okay. So no capital still went up.
That's because we're in this overlapping period right now we're still finishing up.
Voice over LTE.
So we're starting down the road to Fiveg and fun GE will as well the way I'm thinking about at least there's two parts of that Fiveg investment first is the one that is allows the network operate a lot more efficiently.
Back that we were able to get a lot of spectrum be able to deploy that from an existing sites. So as we can handle the next wave low demand less expensive, leaving just putting out more cell sites costly, we'll try to both capex and operating expense. So there's a bit of the transition going on.
The same time.
Fiveg I believe is going to can is going to show some very nice revenue opportunities for us we see demand for fixed broadband.
Wireless broadband continuing to.
Take hold in places, where you just can't make the table Oh.
On the fiber economics work.
And we'll continue to do that but more importantly, what we're starting to see.
Even in mid town cities is a desire to understand how fiveg can help these government entities deliver their services to their consumer to their customers are tax base more efficiently and that was something like I'd tell you a year ago no.
Yeah, I heard about what we're doing in Dallas in Big cities like that and didn't think it really applied but having had the benefit of some of the conversations in mid size to mall to smaller cities.
Amazed at how events there and some other thing so a lot of that led us to develop their I understand that it's a long lead time, but you've got ahead of the infrastructure in place, especially.
And in the core network well, we can always in red cell sites to deliver fiveg local market. The first our first starting point is inside the quarter, which is what we're spending on right now.
And people have been debating if this 2020 will be a year for a quote super cycle with fiveg iconic devices coming out.
How's your view in the guidance right now and also your view of what's actually going to transpire with the switching pool.
Wow.
Too soon for me to tell.
Yes, a lot of lot of talk about it but I think the we're still early in the five key deployment and in fact.
If fiveg deployment isn't far enough along we actually run the risk of.
Dissatisfaction with consumers.
If we get the Supercycle change in the network is in there because people expect something that hasn't been delivered so something I want to be very carefully.
Okay. Thanks.
Thank you have a great weekend.
[music].
Your next question comes from Philip Cusick from JP Morgan Your line is open.
Hi, This is read for Phil Thanks for taking my question since the fall tower multiples have increased anywhere from a few turns to as much as five times, so, especially in the context of your Capex guidance in the upcoming spectrum auctions would you share your thoughts on taking on a partner or changing your stance on on monetizing those towers. Thanks.
Sorry, I didn't read I didn't hear the very beginning part of your question.
Just just talking about how terrible couples of really expanded anywhere from a few turns to to five times since the since the fall this 2019th.
Okay Yeah.
I think myday stance on towers has been.
Pretty consistent maybe painfully so and that is the their strategic assets and the continued to be strategic they continue to be important as we change our network configuration with with Fiveg.
Just like it has with every other technology change.
I also said was that spectrum is a strategic asset also and.
I could.
Testify that could use a trade of one strategic assets. If it allowed me to get another strategic assets. So towers for stuff from the something that we consider but just towers for tower C isn't something that was on my in my current plans.
Great. Thanks, and then maybe the second one separately you know we've seen solid growth in cable, particularly broadband over the past here can you kind of estimated what the portion of out of territory build that counts for when you're looking at the total subscriber and revenue growth cable like you know are in footprint.
It gets less attractive as kind of the Capex spending got in Spain makes it appear thanks.
So let me make sure I answer your question if I don't know file please follow back up but read this vicki villacrez as you're looking at cable we are expecting strong broadband growth similar to the trends you've seen all this year into 2020, and that's really separate.
From our out of territory broadband growth, which is in our wireline segment and that growth is really offsetting some of the secular declines that we have in our wireline base, including on the commercial declines that we're seeing from I see like business.
Great. Thank you.
Your next question comes from Sac Silver from B. Riley Your line is open.
Okay, great. Thanks for taking the question on the U.S. cellular side do you guys are emphasizing this ideas expanding addressable markets as a priority. This year as this just a reference to the edge out expansions you guys are doing over both Ti or is there anything beyond that and also wondering if you can help us.
Kind of think about the growth rate and covered pops over the next year too.
And there's two aspects to exact one is you know the small what I'd call. The small impact of the edge out right is that it's not that material, but they are adjacent markets that are adjacent where we can leverage our network, we could leverage or distribution and name awareness.
I think the bigger opportunity is what we're trying to do with the brand refresh we've been in these markets for a long long time, we've got out.
The loyal strong following but it's really focused and just.
Couple of segments, and what Weve trying to do with the brand refresh is open the size of other segments and show how we can better meet some of their needs under.
It's been an evolution that is is resulted from some product and positioning statements that were great decisions. When we made some years ago, but as the business change you know we found ourselves you know less relevant in certain segments. What we're trying to do with the brand refresh is really opens the aperture.
In our current markets, which is a much bigger opportunity.
Okay makes sense and then.
Another one for you can just there given that it looks like a you know timo spread is since going to go through and you've got this coming out as a new entrant.
Anything that we should think about a year in terms of the trajectory of both the roaming revenues and roaming costs.
Oh Boy, that's a great question I think we have.
Most of the most of the work done around the cost side.
Paul already I think we the team has positioned us really really well in terms of.
Allowing our customers to.
Just the benefit of their packages wherever they are at in doing in a way that we can afford to do that now on the on the revenue side effects that we've got.
Agreements in place with all four of the major carriers and the.
This comes in they probably coming as a reseller first I think theres an opportunity for us to continue to see growth in that how transitions work and everything else, we'll still see but I'm I'm pretty positive well above where we've positioned or our roofing business right now.
Okay. Great helpful. Thank you and then if I could switch over to a that telecom side for a quick one for either Vic Air Jan I could you just remind us what you're sort of target penetration rates are for the out of territory fiber builds and.
So has there been any change in competitive intensity any there the current or future launches that you guys have seen.
I'll take that one so in or out a territory fiber markets, we're hitting penetrations over 50%. So translate that to market share itself is 60% range in or out of territory and the only area. We've seen any competitive reaction is.
Julien and to use where as we go into you know whether its charter we largely have charter out there in some of our markets where they locked up.
So just we can still sell into them, but they've got marketing agreements, but not anything and we've actually seen much better improvement on our you know that was the consumer penetration we're actually really.
I'm pleased with our commercial penetration, we're seeing much stronger ramp up in our commercial penetrations earlier than in our business cases, So that's what I said earlier, we're adjusting those.
So we just in all of our new markets. The I know Sun Prairie, we're seeing performance at or better than the Sun Prairie market. So we're really bullish on this opportunity.
Okay, great. Thank you very much.
You bet.
Your next question comes from Simon Flannery from Morgan Stanley. Your line is open.
Great. Thank you good morning.
Can you talked about spectrum and you have a slide showing a mid band spectrum in key to Fiveg. So how are you thinking about CBR SNC bonds and how much you need there to be successful <unk> related question, what's your thoughts on dynamic spectrum sharing.
I'm going to let the experts talk about dynamic spectrum sharing things that are.
We'll be on my.
Headlights, and Mike Irizarry RCG goes the sitting here is waiting for that.
[laughter].
As a kind of strategic matter the discussions that we've had oh, let's see Bureau.
We view that more is augmenting our network not one that.
Becomes primary but what has some nice benefits and.
Could have incremental value.
C band we like.
There's a lot going on with that spectrum, right now and I.
I have than we will continue to encourage the FCC to me is much of the hello available as possible.
How much do we need I don't know, we know what we need I know hill I'd like a lot like so.
Well I would have liked to have seen all 500 come into the marketplace as opposed to the 280, but the 200 leads the nation starting point if that's finally gets approved.
But I think that it is important especially in enlist densely populated markets. So I'd like to see significant additional mid band spectrum come into the marketplace and we're working with CIA.
As you industry level as well as working with the regulators to see what we can do in that area.
Talk a little bit about dynamics, but for sure Yep. Good morning, Simon So Oh pardon me if that's it said we think it's a great technology, it's just coming.
To market now so we'll be testing it Oh, we do not need it for our initial deployments of Fiveg that we're working on right now as you know we have clean 600 megahertz, which we think is an advantage for us versus others, who are deploying of fiveg and the lower a spectrum, but in later ways. Our deployment, we we will look to.
To to test and deploy DSS to take advantage of some of its capabilities.
Great and just just real quick follow up on Capex Ken.
Given this sort of overlapping period, you said it does that mean, assuming the equipment is there that we should think of 2020 capex is kind of being the peak in the cycle.
Or is it more level at this level.
Don't know and the reason I say don't know is that.
Our five UGI deployment at least in 2020 certain millimeter right and we've said we're we're starting in millimeter late in this year because that's what we have if in fact, there was a path to.
Mid band.
You might see us moving there because it was better.
Coverage.
Patterns and that May actually you know that will impact whether or not you need as much.
Capital to get the same covered so I've got to wait to see other spectrum.
Positions play out over the next.
12 to 18 months before it really comment on that.
Great. Thank you.
Your next question comes from Sergei.
I'm, calling your line is open.
And this that this will be our last question. Thank you.
Morning, guys I'm just the.
I guess, a follow up on T. Mobile's sprint. So obviously it looks like the deal is going to close a more like this and not so assuming that was close I mean, what do think has been there.
It seems like Teneo markets, and what is going to be a longer term emphasis.
On your markets and also.
No I have you seen any T mobile overbuilds on 600 in your markets over the past a three to six months.
Hey, I don't know what the impact is going to be short term I'm sure there's going be a lot of advertising, but for the same token. Yes. This isn't a surprise or this is it's been come and it's been coming for some period of time and changes we've made to our product offering change.
As we've made to our brand positioning and our network are all aimed at positioning us well for that in fact, we will go we look at this and say, there's a couple million sprint customers in our market they've all got it make a decision and we think that we've got.
Perfect solution to their wireless needs. So short term I think theres some opportunity.
Longer term.
As I said before notwithstanding.
A lot of.
Let a headline risk. The fact, the met or is the economics of that deal well are not going to be made are broken by what happens in mid size in rural markets, that's going to be what happens in the big markets and that's where I expect to see most of the action.
And.
Have you seen any entries into mumbles activity in terms of Overbuilds six on the lately.
Nothing I'm aware of a move we saw some a year ago. So what I believe we've not seen much in the last six months, Okay, and I guess on the flip side of this merger I mean, maybe it was little Kansas or as an opportunity I mean, it looks like Youre five Mg network architecture and five.
Bill strategy is similar to two mobile Sprint's I mean, you will start from 600, almost a minimum through my friend a potential to supplement is Ah I. Just know me back so does that create an opportunity for you to partner, there's an entity is that there's been.
Have a arguably a very strong network in the next two years, whether its roaming whether it's any other partnerships, whether it's potentially becoming an affiliate in sort of rural markets, where you have expertise, but say.
Don't so I mean, if you could share your thoughts on is that angle.
Oh, I'm constantly looking for opportunities to enhance our competitive position grow revenues into our reduce costs.
You know anything with any carrier that does that something that we have explored in our impressive we'll continue to explore.
Right and a in terms of a cable competition, how much of an input.
Cable have in your markets last quarter.
And looking at.
Basically the customers were switched to cable and then eventually come back if you could share any thoughts on as a percentage of customers, who you are able to win back.
I don't have a those numbers in front of me Sergei we did see in 2019, a impact in our feature phone in our low end users.
That for price reasons have moved into some bundled packages.
I'd say the pace of that has slowed down, but we definitely felt at last year.
Thanks, and have a great weekend.
Thank you guys.
Yes.
Okay, Michel I think thats it for today, we'd like to thank everybody for joining us and we'll talk to you over the course of the next week or two thanks, so much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.