Q4 2019 Earnings Call
Ladies and gentlemen, thank your for standing by and welcome to T.D.S. and U.S. cellular fourth quarter 2019 calls.
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'll need 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, but I like to hand the call.
That's over to your speaker for today Jane Mckenna. Please go ahead.
Thank you Michelle good morning, everyone and thank you for joining or.
I 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 it off are you prepared comments.
Our from U.S. cellular Ken Meyers, President and Chief Executive Officer.
Oh Chambers, senior Vice President and Chief Financial Officer.
Entrant Tds Telecom, Jim Buttoning, 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 Tds and U.S. cellular Investor Relations website.
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 I like the contribution of U.S. cellulose 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 and 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 in RCC filing.
Tdf Intuit cellular filed there as you see form 8-K yesterday, including today's press releases and please note that we'll be filing or if you see form 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 Morgan Stanley Technology Media and Telecom conference on March fit in San Francisco.
I will be doing a non deal road show with strategic Securities in Portland on March six.
And I should know we have an open door policy. So if you're coming through 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 calendar somebody.
Also I did want to highlight that we have yet again announced an increase in our dividend rate for 2020, this being weak 46 consecutive year that we've raised our dividend.
And before turning the call over I want to remind everyone that even though.
<unk> auction a FCC auction one of three has ended.
We are still any assignment phase that we were able to respond to any questions related to any FCC auction.
Now I'll turn the call or it can Meyer.
Good morning.
I'll start on slide.
Before talking about 2019 2020.
I want to take a step.
Some of our multiyear investment.
Those letters or our customers into the future.
With that.
I cannot comment.
Three.
1.26.
Anyone in one or two where we secured important.
Gee.
In terms of the customer experience you entered introduction of losing played the game changer bridge.
Right.
And as much as I still worried about the long term economic unlimited plans customers.
Even from overall satisfaction.
And the migration to the how your price plans.
All right increases in average revenue per user.
[noise] support increased data usage, you have continued to invest none of that.
Other investments we've made in key.
And to refresh sort of them, bringing third just worries and design to broaden our appeal in the marketplace.
We've also enhanced her website that customers have even better.
After our online experience, giving us a platform for future growth and the true.
Also there are very positive developments in our blooming.
Voice over LTE technology is broken down eight you made chisholm only.
And today, we have really agreement.
The big four carriers as a result, you see roaming traffic condemning revenues.
Moving expenses decline very nice combination.
We've also invested in their culture in which our frontline associated to that deliver.
Indeed customer experience you would see there's nothing for the marketplace with numerous.
Sure her exceptional.
Hi levels of engagement remain at our culture continues to thrive.
Her showcases our secret sauce.
Greatly appreciate holder.
As mentioned earlier, we continue to invest in the network can be capacity and the ongoing growth in demand.
And to improve speeds to.
Yes.
I don't stages of her voice over LTE U rule.
We are multiyear.
Gee.
Neutral by rollout.
<unk>.
I would use 600 megahertz spectrum.
Paid off.
Millimeter wave spectrum free speed and support future use cases.
These charts on the stage show, how well meeting or customers ever increasing demands for do we have the same kind of manage the business right and you will increase as an adjusted.
Earnings before taxes, depreciation and depreciation and amortization well continue to make investments for the long term, including voice over LTE network modernization.
In Fiveg.
2019, Slide six New York hurting 2019 to protect their customer base and smartphone connections grew by 71003 year.
For the full year, instead churn increased slightly the previously or but it's still low indicating strong levels of customer satisfaction.
And this ultra competitive Merck.
He is a priority was growing grown.
Reported a 2% increase in service revenues for the year, driven by 2% increase in postpaid average revenue per customer the 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 <unk>.
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 in fact for the year cash operating expenses Rose just board tens for 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 in 20 Tony.
One highlight was or ability to manage network costs, given the impact from increased data usage.
With us in perspective for the full year data usage from 39% well systems operations expenses were essentially flat.
I didn't accomplish.
The combined result, all these actions as we grew adjusted EBITDA, 5% between 19.
[noise] network quality remains core to our customer satisfaction strategy.
2019, we continue to invest in the network to accommodate increased either usage and to enhance the customer experience.
We ended the year with multi technology available to nearly 70% of our customers and deployment to the final markets is expected to be largely completed 2020.
And we didn't gain 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, Karen and good morning, everyone I want to talk first about postpaid handset connection shown on slide seven.
Postpaid handset gross additions for the fourth quarter were 130000 down from 136000, a year ago due to aggressive industry wide competition out 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 trend.
In addition to smartphone gross additions we continue to have existing had said customers upgrading from feature phones to smartphones.
As you can see on the graph on the right side of the slide.
The upgrades.
Total smartphone connection increased by 27000 during the quarter and by 71000 over the course of the past here.
That helps to drive more service revenue given the ARPU for smartphone is about $22 more and ARPU for feature phone.
Next I want to comment on the postpaid churn rate shown on slide eight.
Postpaid handset churn depicted by the Blue bars was 1.11% for the fourth quarter of 29.
Tired of last year, driven primarily by aggressive industry wide competition.
Total postpaid churn finding 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, while 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.
There was a decrease in gross additions activity year over year it impacted device sales.
In addition, we're 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.
99 cents or approximately 2% year over year.
The increase was driven by several factors, including a higher mix of smartphones relative to protect it devices.
Shifting service playing mix to higher price plans and increased device protection revenue.
43% of our postpaid connections are now I know 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 22 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.
Does this change also affected general and administrative expense by a like amount is neutral to earnings.
Looking through this change are providing 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 a dollar thrifty down year over year, excluding the U.S. that's impacted I, just discussed ARPA increased by $2.42 or too precise.
Let's move next to a profitability measures.
First I want 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 year ago.
Correspondingly the margin as a percentage total operating revenues was up one percentage point to 17%.
For those watching service revenue margin. The current quarter result was 24% 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 decreased 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 usage.
Cost to be crippen sold decreased to due to a decrease in the number of devices sold and a higher mix of used to buy device sales, which primarily represent the resellers devices.
Turned 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.
Show next is adjusted EBITDA, which 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're upgrading 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 retro 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 it off network data usage.
Adjusted operating income and adjusted EBITDA grew 5%.
It 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.
Need we've all their plans and pricing, but in a economically risk [noise].
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 beat it be marketplace, whether you called smart city or in inner net of things interest is growing.
And fixed wireless broadband continues to be complementary products for their customers do not have access to adequate broadband service today.
Customer expectations are always changing and we're 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 me ever increasing demand.
Finish the last Vultee launches.
Let's start 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 2019 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 the increased that were cost 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 on actual 2019 and estimated 2020 capital expenditures, we have provided a breakdown by major category.
There's a lot going on in the network station 2020.
We'll be completing our organizational both the rollout continuing our low band Fiveg rollout and hopefully because these are 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.
And then out of our existing footprint and our acquisition strategy.
Our investments in fiber to the home or not new in fact, we made a strategic shift away from upgrading copper and our most attractive I like markets to deploying fiber.
Augment that with superior products.
Hyper localized marketing and sales.
Success, we saw with this transformational change was the catalyst.
Just 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 $1 billion, 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 grants 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 that 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 continue 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 EBITDA, Our route relatively 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.
Yes, Telkom 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 wire line 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 quarter.
Wireline residential video connections grew 8% compared to the prior year.
Video is important to our customers approximately 40% of our broadband customers in our IP TV markets take video, which for US is a profitable product.
We expect to see increasing trends in this metric as we are seeing higher results in or out of territory market.
[noise] Tds Telecom continues to grow its overall IP TV customer base by targeting markets and segments that 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 served 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 in our current fiber markets 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 an expansion in our major clusters.
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 and 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 costs 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 revenue.
Now moving to cable on slide 26.
Cable total revenues increased 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 continued 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 browse and fast reliable service has generated a 17% increase and total residential broadband revenue.
Also driving this growth is an 8% increase an average residential revenue per connection driven impart by customers rolling off promotion higher product mix and price increases.
<unk> 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.
You Vicki.
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 come to continue to innovate what we sell in how we sell it.
Tds TV plus our next Gen cloud based TV service was launched this week in our first market.
And we will roll it out throughout 2020 in our cable in wireline operations.
Tds TV plus is a far superior product 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.
Hello, 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 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 are adjusted in 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 was an 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 ubiquity.
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.
Our 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 costs in our new market.
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 and 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 to the year showing improvements in revenues, while driving operational improvements in its cost structure.
[noise] 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 and 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 served one on your telephone keypad participate among the two couples that given a roster.
Your 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 to ask can kind of what do you think of the industry structure.
With dish coming out as a a fourth fiveg operator cable companies with their NVNO strategy 18, T. with its first not project. How do you think about the industry structure competitiveness and where are you a cellular really fits in that and how you might work was that structure.
Oh, there's a multipart question to start today off on.
That's a delayed to see how the industry keeps broadening its.
Its appeal right its addressable market, we started off voice voice data and voice that data video cable companies come in.
Yes, I see I think we're going to see continued evolution of this.
I think that how we fit just how we've always said, which is our focus on mid sized rural markets.
We will continue to see a lot of headlines about.
And companies in different initiatives, but the reality is that most of their economics are driven out of much larger markets.
Winning more in the market you know.
Oregon to isn't going to change the economics.
And the large carrier that's where we've.
And our bread and butter, we will continue to focus on needs.
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 good shape return on capital.
Okay. So you don't get capital still went up but that's because we're in this overlapping period right now, we're still finishing up voice over LTE.
Oh, we're starting down the road to Fiveg and GE will.
Well when thinking about at least there's two parts of that Fiveg investment.
<unk> is one that is.
The network operate a lot more efficiently. The fact that we were able to get a lot of spectrum and be able to deploy that from an existing.
So as we can handle the next wave.
Demand less expensive, leaving just putting out more cell sites constantly which drive both capex and operating expense. So there's a bit of transition going on.
At the same time.
Five cheap I believe is going to can is going to show some very nice revenue opportunities for us we see demand for fixed broadband of wireless broadband continuing to.
Take hold in places, where do you just can't make the cable Oh.
The fiber economics work and we'll continue to do that but more importantly, we're starting to see.
Even in mid town cities is a desire to understand how five key can help these government entities delivered their services to their consumer to their customers their tax base more efficiently.
That was something like I'd tell you a year ago, no I heard about what they're doing in Dallas in big cities like that and think that really applied but having had the benefit of some of the conversations and mid size to more 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 on the core network well, we can always Ed still slate to deliver fiveg local market.
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 yeah, a lot of lot of talk about it but I think the we're still early in the five key deployment in fact.
If fiveg deployment isn't vertical along we actually run the risk of dissatisfaction with consumers and if we get the Supercycle change in the network is in there because people expect something that is it be delivered so something I want to be very careful with.
Okay. Thanks.
Thank you have a great weekend.
Good.
Your next question comes from Philip Cusick.
JP Morgan your line is open.
Hi, This is read for Phil Thanks for taking my question since the fall Terra multiples have increased anywhere from a few turns to as much as five times, so, especially in the context of your Capex guidance and the upcoming spectrum auctions would you share your thoughts on taking on a partner or changing your stance on on monetizing those towers. Thanks.
I'm, 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 20 not team.
Okay Yeah.
I think my stance on towers has been.
Pretty consistent maybe painfully so and that is the their strategic asset and the continued to be strategic that continued to be important as we change our network configuration with with five G.
Just like it has with every other technology change well what I also said was that spectrum is a strategic asset wholesale.
And yeah.
Good.
Yes, the pie I could use a trade of one strategic.
If it allowed me to get another strategic assets. So towers for spectrum is something that we consider but just towers for tower C isn't something that was on my in my current plan.
Great. Thanks, and then maybe the second one separately you know we've seen cell growth and cable, particularly broadband over the past here can you kind of estimate what the portion of out of territory build accounts 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 it makes it makes it appear thanks.
So let me make sure I answer your question. If I don't you know file please follow back up but read this as 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 idea of expanding addressable markets as a priority. This year as this just a reference to the edge out expansions you guys are doing over bowl Ti or is there anything beyond that and also wondering if you could help us.
Kind of think about that the growth rate in 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 can 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 in 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.
Yeah. It's been an evolution that is is resulted from some product and positioning statements that were great decisions. When we made them 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 open.
The aperture and 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 in timo spread to since going to go through and you've got dish coming in 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 the work done around the cost side.
Oh 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 their ads 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 about where we've positioned or our roaming 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 Vicki or Jan I can 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 the market share. It's up is the 60% range in our out a territory and the only area. We've seen any competitive reaction is.
Julien M 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.
I would just we can still sell into them, but they've got marketing creaminess, but not anything and we've actually seen much better improvement and 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 like.
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 Crs and C band on 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 expert to talk about dynamic spectrum sharing things that are oh, well beyond 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.
It 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.
Hi, hail 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 so I'd like a lot like.
Probably would have liked to have seen all 500 come into the marketplace as opposed to the 280, but the 200 origination starting point if thats finally gets approved.
But I think that it is important especially in enlist densely populated markets. So I'd like to see significant additional a mid band spectrum.
Into the marketplace and we're working with CIA.
The industry level as well as working with regulators to see what we can do in that area. Let me talk a little bit about goes I know its but for sure yep. Good morning, Simon So far in my yes. That's it said we think it's a great technology, it's just coming.
The 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 there's an advantage for us versus others, who are deploying of fiveg and the lower a spectrum, but in later way started applying that 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 fair 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 Oh, you might see is moving there because with better.
Coverage.
Patterns and that may actually that will impact whether or not you need as much.
[music].
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 I can really comment on that.
Great. Thank you.
Yeah.
Your next question comes from Mr., Okay.
I'm call. Your line is open.
This this will be our last question. Thank you.
Good morning, guys.
Just the.
I guess a follow up on two mobile sprint. So obviously it looks like because the deal is going to close a more likely than not so assuming it does close I mean, what do think is going to.
Immediate same thing.
Okay.
Is gonna be longer term.
On your markets and also on their latest notes have you seen any T mobile overbuilds on 600 in your markets over the past a three to six months.
Hi, I don't know what the impact is going to be short term I'm sure there shouldn't be a lot of advertising, but by the same token.
This isn't a surprise or this is that's been calm and it's been coming for some period of time and changes we've made to our product offering changes 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 looked 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.
Flipped 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 mobiles activates in terms of Overbuilds six on the lately.
Nothing I'm aware of a movie saw some a year ago no. What I believe we have 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 G network architecture and five.
Bill strategy is similar to two mobile Sprint's I mean, you will start from 600 to move to minimize the.
The potential to supplement those Ah I just know that so does that create an opportunity for you to partner, there's an entities that does have a arguably a very strong and that's.
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 they.
Don't so 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 interest so well continue to explore.
Right and a in terms of a cable competition, how much of on them, but the cable have in your markets last quarter.
And are 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 those numbers in front of me Sergei a we did see in 2019, a impact in our feature phone in our low end users.
That see for price reasons have moved into some bundled packages.
I'd say the pace of that has slowed down, but we definitely felt that last year.
Thanks, and have a great weekend.
Thank you guys.
Yes.
Okay, Michel I think that's it for today, we'd like to thank everybody for joining us and I will 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.