Q2 2020 Telephone and Data Systems Inc and United States Cellular Corp Earnings Call
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Thank you at this time I will turn the call over to our host Jane Mccann Ma'am. Please go ahead.
Thank you Jamie good morning, Thank you all for joining us today.
On a send out our very best wishes that you and your families are well.
We've worked hard to prepare materials in remarks for today to share with you the strength of our businesses and provide insight into what we believe we'll see some of the most significant opportunities and challenges facing the coming months.
Please let us know if we can do anything to provide more timely and important information.
I want to make you all aware of the presentation, we prepare to accompany our comments. This morning, which you can find on the Investor Relations section of the Tds and U.S. I only website.
With me today, an offering prepared comments are from Tdm, Pizzeria executive Vice President and Chief Financial Officer.
From U.S., Telular, LG terrible President and Chief Executive Officer.
Ken Meyers senior adviser to the CEO.
Doug Chambers.
In your Vice President and Chief Financial Officer, and Mike Irizarry, Executive Vice President and Chief Technology Officer.
From Tds Telecom, Vicki Villacrez senior Vice President of financing Chief Financial Officer.
This call is being simultaneously webcast on the U.S. cellular and Tds Investor Relations website.
We see those websites for slides referred to on this call, including non-GAAP reconciliations.
We provide guidance for both adjusted operating income before depreciation and amortization or OIBDA and adjusted earnings before interest taxes, depreciation and amortization or even though I like the contributions of U.S. Cellulars wireless partnerships.
Tds and U.S. cellular filed their FCC forms 8-K, including the press releases and forms 10-Q yesterday.
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 <unk>.
Please review the Safe Harbor paragraphs in our press releases and the extended version included in RCC filing.
Weve updated our safe Harbor statements to include specific risks related to covert 19, and its impact on our businesses and provided that here specifically on slide three.
In terms of our upcoming IR schedule slides for will be virtually attaching Morgan Stanley's corporate access day on August 13, and then doing a virtual Morgan Stanley Non deal Road show on August 20 of which will include a fireside chat.
And our open door policy is no more of a open phone or open video policy. So please reach out to us and we can arrange them.
Before turning the call over I'd like to remind everyone that due to the fccs anti collusion rules, we will not be responding to any questions related to the FCC auctions and spectrum strategy.
Now I'd like to turn the call over to pizzeria heat.
Thanks, Jane and good morning, everyone I'm going to make some brief comments about the balance sheet and actions we've taken during the cold and 19 crisis to protect yourselves financially, but before doing so I'd like to highlight the strong operational and financial results are both business units during the quarter.
Pandemic has highlighted the criticality of our products to our customers and the teams have stepped up and continued to deliver on their typically outstanding service levels.
Now onto the balance sheet as we've talked about before maintaining financial flexibility is one of the pillars of our corporate strategy over the years, we have worked to retain relatively low leverage levels long dated debt maturities sufficient undrawn revolving credit facilities and significant cash balances.
The same time, making sure we have the financial resources, we need to fund our businesses.
As you can see on slide five at June Thirtyth, Tds had $1.7 billion and available funding sources, including cash and cash equivalents available credit facilities Undrawn term loans, an undrawn portions of our ERP securitization.
We took a number of stuffs earlier this year to solidify our overall liquidity and feel confident we're in a stable and sound position. The rest of the year. We also repurchased a little over 500000 tedious common shares at favorable prices during the quarter balancing the need to retain liquidity with the pricing opportunity offered by the market.
As is our practice, we will look to take advantage of favorable market conditions to augment our balance sheet going forward. We believe we have additional access to the debt capital markets, both retail and institutional as well as other conventional data sources.
But were necessary. We believe we would also have a number of potential additional funding sources, including some related to our own towers and wireless partnerships. Although we would use such financings less favorable let's favorably than straight debt for constant operational reasons.
Finally, as you can see from the chart on the right side of the page most of our existing debt is very long dated essentially no near term maturities pressuring our liquidity position.
I'll now turn the call over to Kevin.
Thanks, Pete good morning.
I'd be lying as I told you this wasn't a bittersweet moment for me.
So probably work for tedious and U.S. cellular for over 30 years.
Hi, my phone actually by James.
I've been involved.
In reporting for some 136 quarters with many of you on the receiving and somewhat.
Maybe even menu.
Maybe just feels that way.
I want to acknowledge I've learned a lot from you and we'll miss exchange of ideas and information.
I want you to know that I'm confident and even the organization in great hands.
Oh user has an exceptionally talented management team in the most customer focused associates in the industry and now as a new leader with the skills and experience to move the company Board.
I look back at the first half of 2020.
I'm thankful that I can report we survive what are the most on precedent to events and our country's history.
And we are in a strong position going forward.
Thanks in large part who are resilient.
Carrying organization.
And before I turn the call over the last time.
I want to thank all of our associates for their contributions and serving our customers Oh its would work with you in which in which you should you much success going forward.
LT, it's all yours.
Thanks, Ken.
Ken Thanks for all the sound advice and counsel that you provided during this transition.
Good morning, everybody, it's a pleasure to be what do you.
No I started this job just on July 1st I'm going to share some of my initial impression for the most part I'm going to be listen mode. Today.
Chambers is gonna, we're going to is going to walk you through our results for the core.
And this has been a challenging few months for everyone.
I'm proud to be part of this industry.
Particularly proud to be part of this company.
Pandemic it validated what we do is truly central.
Acting family friends and Commerce.
The particularly exciting time to be in wireless, especially as we embark on fiveg.
As you know we've already launched them in different markets on Fiveg, we're going to provide some more details on that later in the call.
My first month at U.S. cellular isn't full of learning listen I feel it's been a seamless and effective transition.
We past few weeks I've traveled to several of our various locations that would many barr associates.
Of course in the safest manner possible.
Consistently inspired by our customer centric culture in the high levels of engagement do we have across the entire company.
Flexibility in resiliency that our associates have displayed throughout this being done are tremendous.
It's clear to me that our focus on the customer.
Quality network are critical to growing this business.
Speaking of network I'm pleased to report or network strength was recently recognized as one another JD power. This recognition validates for me that our network modernization strategy is working.
Oh I talk for just a minute about why I joined this company strong company tremendous corporate culture.
It's also a company was incredibly valuable assets spectrum towers distribution.
And our assets have been significant financial value.
Yeah operational importance.
And my goal is to build on that strong culture enough strong assets.
Drives strong.
Let me be very clear I was hired to lead us cellular into the future to grow this business.
I'm going to be very focused on building value for all of our constituents.
Over the coming months my leadership team and I are gonna be developing a strategy.
And in doing what is best for U.S. cellular to continue to be minimal competitor over the long term.
We touch briefly on the core.
He aspects of our second quarter performance were impacted by the endemic.
Yes, we were able to generate very solid results.
Extremely proud and with the team has accomplished.
The results are really a testament to cat and his leadership.
No I was going to take you through the details in a moment.
Looking forward the rest of the you're going to build off these strengths.
Also intensifying our focus on community specific campaigns.
During the products and services and solutions that our customers want.
I'm looking forward to reporting our progress throughout the back half of 2020.
Getting to know all of you are investors or analysts.
Well. Thank you for your support now I'm going to turn the call over to Mike Irizarry is going to update you on our latest fiveg initiatives.
Thanks, LT and good morning network quality is foundational to U.S. cellular our goal is to ensure our customers have a great experience whenever and wherever they use their devices as most of you know, Iowa, and Wisconsin, where phase one of our multiyear Fiveg <unk> network expansion at last week, we announced our next.
Phase.
To begin in the second half of 2020, we will deploy in 11 states or about 10 million Pops.
We're working with three equipment vendors and we're continuing to expand the number of Fiveg devices.
We've been very pleased with the poor performance in phase one.
Customers are receiving an improved customer experience.
Our fiveg deployment cruise average in peak speeds for Fiveg enter fourg customers.
This is to improve customer experience in new revenue opportunities.
Spectrum fiveg to carry traffic more efficiently.
Improving the cost to deliver a bit.
This efficiency enables us to get the most out of our spectrum portfolio.
We expect to begin deploying or millimeter wave spectrum at 2021 to improve speed and capacity denser areas of our footprint further we expect to conduct trials ever millimeter wave fixed wireless service in 2021 in select markets.
I will now turn the call over to Doug Chambers, Doug.
Thanks, Mike turning to slide the first let me briefly provide Cobra 19 update.
First our entire organization has been incredibly resilient as we successfully manage through continuing uncertainty.
We have maintained our work at home program for those where it is feasible and what we're working on a return to office plan, we have not so timetable for doing so.
I'm until front, our stores are open and larger but largely back to normal hours. We continue to follow important safety steps to keep our frontline associates and customers.
As expected the pandemic led to reduce store traffic levels in the quarter. However, each metric has shown steady improvement.
Pandemic loads recently store traffic has been running about 20% below prior year levels.
Finally, our supply chain remains fully functional and our inventory levels are good.
Turning to slide nine even with all this disruption.
Executing on our strategic priorities.
So in a moment subscriber results benefited from very low churn and strong connected devices addition to in the quarter.
Revenue growth in the quarter was impacted by reducing bromine reduced roaming revenue, which was partially due to decrease mobility wireless users during the pandemic.
Also as any additional ways to help our customers, we removed caps ideally usage and weve overage charges, which had a negative impact on ARPU in the quarter.
Besides the Fccs keep Americans connected pledge, where we committed to not this current customers. We're experiencing cobot 19 related challenges for non payment through June thirtyth.
We had about 56000 subscribers sign up for the pledge with 39000 remaining at June Thirtyth.
This and need about Unpledged subscribers is less than we anticipated at March 30, Onest, resulting from proactively working with pledged customers to administer collections and enroll them in payment arrangements.
As a result.
Decreased our estimate of bad debt expense related to pledge in the second quarter.
Overall, despite some negative impacts to revenue and expenses as result of the pandemic, we continue to control cash expenses, which decreased 3% year over year.
From a network standpoint, we engineer our network for peak usage periods and the network continues to perform well.
Sure Dave Colbert 19 has increased data traffic about 20% to 25% and our that work has been able to handle that extra demand.
Throughout the quarter, we continued our network modernization efforts and we will be finishing our both redeployment this year.
Our expansion markets in Iowa, and Wisconsin are doing well.
Thats LT highlighted we want to another JD power wars.
Recently on postpaid connections results during the second quarter shown on slide 10.
Hosting hits, a gross additions decreased primarily due to both switching activity and decrease store traffic due to the impacts of Coburn 90.
Partially offsetting this was increased demand for connected devices.
Total smartphone connections increased by 11000 during the quarter and by 64000 over the course of the past 12 months.
That helps to drive more service revenue given that smart ARPU by $21 higher feature phone ARPU.
As mentioned you saw connected device gross additions increased by 9000 year over year.
This was driven by gross additions of Internet products, such as hot spots and routers as result of an increased demand by customers seeking wireless products to meet their need for remote connectivity due to the impacts over 90.
During Q2, we saw an average decline in store traffic of around 35%.
Larger drop in traffic at the beginning at the quarter ended the quarter.
Decrease in store traffic had a negative impact on gross additions and accessory margin, although connected device activity remains stronger than the prior year.
Next I want to comment on postpaid churn rate shown on slide 11.
Currently as you would expect Trimble handset and connected devices is running at very low levels.
Postpaid handset churn depicted by the Blue bars was 0.71% down from 0.97% year ago.
This was due to but were switching activity, resulting in a decrease in defections as customer shopping behaviors altered due to the overall corporate 19 crisis as well as a reduction in non p. defections related to the FCC pledge.
Oh postpaid churn by the enhancements and connected devices.
<unk>, 0.9% the second quarter 2020 also lower than a year ago.
Now, let's turn to the financial results on slide 12.
Total operating revenues for the second quarter were 973 million flat year over year.
Retail service revenues decreased by 4 billion to 650 million.
The decrease was due to a decline postpaid subscriber base, partially offset by higher average revenue per user which I'll cover on the next next slide.
Hey, Bob roaming revenue was 41 million.
That was a decrease of 3 billion year over year, driven by lower rates, partially offset by higher data volume.
Other service revenues were 54 million.
That was an increase of 3 million year over year attributable to a 16% increase in tower rental revenues.
Finally equipment sales revenues increased by 4 million or 2% year over year due to the increase in devices sold partially offset by a decrease in the average selling price and the decrease in accessory sales.
Now a few more comments about postpaid revenues shown on slide 13.
Average revenue per user or connection was 46 24 for the second quarter up 34 cents or approximately 1% year over year.
On a per account basis average revenue grew by $1.24 or 1% year over year.
The increase is driven by several factors, including having proportionally less tablet connections, which on a per unit basis contribute less revenue than smartphones and inc. an increase in regulatory recovery revenues.
And increased device protection revenues.
As part of caring for customers Dream corporate banking crisis, beginning in March we elected to Weve overage charges and we also weve.
And other fees in conjunction with the FCC pledge. These weve charges, partially offset the increase to ARPU.
Let's move extra profitability measures on slide 14.
First I want to comment on adjusted operating income before depreciation amortization and accretion and gains and losses.
Keeping simple I'll refer to this measure as adjusted operating income.
Turning to the bottom of the slide adjusted operating income was 235 billion, an increase of 23 million year over year.
As I commented earlier total operating revenues were 973 million flat year over year.
Total cash expenses, which 738 million decreasing 23 million year over year.
Total system operations expense increased year over year.
Next we roaming expense system operations expense increased by 3%, mainly driven by increases in cell site rent expense and non capitalized cost to at network capacity.
Total data usage on our network increased by 72%.
What we'd expense decreased 2% year over year due to lower rates, partially offset by a 42% increase it often at the usage.
Cost of equipment sold decreased by $6 million or 3% year over year, primarily due to lower average cost per device a decrease in accessory sales and a decrease in charges recorded to reduce inventory to its net realizable value.
These decreases were partially offset by increased volume of devices sold.
Selling general and administrative expenses decreased 6% year over year, driven by a decrease in bad debt expense advertising and employee related expenses.
Decrease in bad debt expense resulted from decreased SVB allowance for bad debt the second quarter of 2020 related to our participation in the FCC pledge.
As I mentioned earlier this decrease was driven by overall favorable experience both administering collections from the FCC punch customers.
And it really that.
Drilling down in payment arrangements.
So indexes adjusted EBITDA, which starts with adjusted operating income and incorporates the earnings for equity method investments.
And with interest and dividend income.
Adjusted EBITDA for the quarter was 280 million at 9% increase year over year due to the improvement in adjusted operating income as well as an increased equity in earnings by consolidated entities.
Partially offset by a decrease in interest income.
Slide 16 provides our guidance for the year and for comparison were also showing 2019 actual results.
For purposes of developing our guidance, we assume that our markets will remain auto blacked out for the remainder of the year and an improvement to a more normal state by late Q3 2020.
I was thinking what would you remind everyone that are guidances on service revenues not total operating revenues, which includes both service revenues and equipment sales.
Variations in equipment sales typically have a corresponding impact on cost to be equipment sold and as a result or less impactful toward profitability measures.
Therefore, we believe that service revenues as a more meaningful revenue measure for guidance purposes.
Service revenues, we have maintained a range of 3.0 to 3.1 billion.
We have also maintain our adjusted operating income and adjusted EBITDA ranges of 725 to 850 million and 900 million to 1.25 billion respectively.
For capital expenditures, we are maintaining our guidance range of 852 950 billion.
We continued made good progress our key projects such as Volte deployments Fourg LTE network modernization in Fiveg and do not currently anticipate the major disruption to any of that.
As we've highlighted throughout the call remains a good deal of uncertainty related to potential business outcomes for the year Cobas I team has an impact on service revenues headsets subscriber gross additions and defections roaming activity and operational costs.
In addition impacts related to the ongoing pandemic I'd be economy in society.
Additional governmental response to the pandemic are still not entirely clear.
This level of uncertainty factored into our decision to maintain our existing guidance at this point in time.
I will now turn the call over to Vicki Villacrez Vicki.
Okay. Thank you, Doug and good morning, everyone over.
Overall, we're very pleased with our results for the first half of the year and our ability to quickly and effectively respond to the covert 19 pandemic.
We grew both revenue and adjusted EBITDA in the second quarter and made progress on advancing our fiber deployment strategy.
Let me first begin by giving an update on the actions that we have taken in the quarter.
In accordance with the FCC pledge, we did not disconnect customers due to non payment and we agreed to waive late payment fees for customers impacted by the pandemic.
As a result of both these actions we recorded a reserve of 2 million in the quarter.
In advance of processing non pay disconnect, which we began in July early indications suggest at about 70% of our customers are prioritizing those services and making arrangements to stay connected.
In addition to the FCC pledge, we also offered a free 60 day broadband promotion contributing to our gross and we're now seeing the majority of these customers pain for these services.
From an operational perspective, our highest priority is keeping our employees and customers safe.
To that end, we continue to operate in a work at home environment wherever possible and have expanded safety protocols for frontline workers, including the direct salesforce as they returned to selling door to door in the second quarter.
From a product perspective, we are pleased to report that we've expanded our launch of our cloud TV product called Tds TV plus two additional cable in wireline markets, including our Wisconsin out of territory clusters and expect to complete those rollouts in the third.
Corridor.
Additionally, we plan to rollout Tds TV plus to our new fiber market quarter Lane, Idaho in the fourth quarter.
This is a really great product and while it is still early in its launch we are focused on ensuring its success across our markets.
From a network perspective, the current prices continues to reaffirm the importance of high speed Internet and how important not only our investments had bad but also our continued advocacy on behalf of Rural America.
As a result of driving fiber deeper into our markets. We have robots networks, which continue to remain very stable and meet our customers need.
From an out of territory perspective, pre sales continue to exceed our expectations.
We are currently installing service in our Wisconsin in Idaho clusters, we remain focused on construction throughout these communities and we are working towards commencing construction in Spokane, Washington, where we recently launched pre sale activities.
Overall, we remain committed to achieving our strategic priorities through the second half of the year as outlined on slide 19.
Now, let me highlight our financial results for the quarter as shown on slide 20.
Consolidated revenues increased 3% from the prior year, primarily due to the cable acquisition, which closed at the end of last year.
It also reflects organic increases in broadband and video from our fiber expansions in wireline.
And continued growth in cable residential ARPU and broadband subscribers.
Again, these increases were partially offset by the reserve related to the FCC pledge.
Cash expenses increased 2%, including the acquisition and were flat without.
As we have seen meaningful favorability unemployed expenses in the quarter and other cost saving initiatives.
Offset by increased plant in maintenance expense.
Adjusted EBITDA increased 2% to 83 million due to these increases in operations, partially offset by lower interest income in the quarter.
Capital expenditures increased 7% to 75 million as we continued to invest in our fiber deployments.
I will cover our total fiber program in more detail in a moment, but for now let's turn to our segment beginning on wireline.
On slide 21.
Broadband residential connections grew 6% as we continue to fortify our network with fiber and expand into new markets.
At the onset of the pandemic, we saw an initial surge in demand, which has subsided to expected growth levels.
Also contributing to this growth is customers not disconnected due to the FCC pledge.
In June we are excited to return I direct salesforce to selling door to door and we saw an immediate impact on our new fiber market sales.
From a broadband speed perspective, we are now offering up to one gig broadband speeds in our fiber markets across our wireline residential base essentially one third of all broadband customers are now taking 100 megabit speeds are greater compared to 26% a year ago. This is healthy.
And to drive a 4% increase in average residential revenue per connection in the quarter.
Wireline residential video connections grew 9% compared to the prior year.
Video is important to our customers approximately 40% separate broadband customers inner IP TV markets take video, which for US is that profitable product. Our strategy is to increase this metric as we expand into new markets that value. These services.
And through the launch of our new Tds TV plus private.
Our IP TV services in total cover one third of our wireline footprint, leaving an opportunity to further leverage our investment in video.
Slide 22 shows the progress we are making this year on our multiyear fiber program, which includes our in and out of territory fiber belt.
As a result of this strategy over the last several years 265000.
Or 33% of our wireline service addresses are now served by fiber, which is up from 27% a year ago.
This is driving revenue growth, while also expanding that total wireline footprint, 3% to 810000.
Our current fiber plans include roughly 320000 service addresses that will be built over a multiyear period.
Year to date, we have completed construction of 25000 fiber addresses and overall take rates are generally exceeding expectations in these areas that we've launched today.
We're expecting our fiber service address delivery to more than double in the second half of the year as we continue launching new markets.
However, as we discussed last quarter, we are seeing some delays in construction that at this point, we still expect to deploy at a pace that is within our capex guidance for the year.
For example, slower minutes of how they permitting as well as electric utility dependencies associated with the area portion of our fiber builds continue to be a major watch point for us in some cases, we're pivoting to buried alternatives, where it makes economic sense.
Looking at wireline financial results on slide 23.
Total revenues decreased 2% to 169 million largely driven by the continued decline in see like commercial revenues and a decline in wholesale revenue.
These declines in commercial and wholesale revenues are offsetting strong growth in residential revenue.
Which increased 6% due to growth from video and broadband connections as well as growth from within the broadband product mix.
Partially offset by a 3% decrease in residential voice connections.
Commercial revenues decreased 10% to 38 million in the quarter, primarily driven by lower see like connections.
Wholesale revenues decreased 6% to 46 million due to retroactive ATM funding in 2019 and decreased access revenue.
Wireline cash expenses decreased 2%. This was driven by lower employee expenses, the capitalization of new modems previously expensed and reduce cost of legacy services.
Partially offset by higher video programming fees.
In the quarter maintenance expense also increased partly due to storm damage in several markets.
In total wireline adjusted EBITDA decreased 4% to 59 million.
Moving to cable on slide 24 cable total revenues increased as customers continue to value our broadband services.
Total cable connections grew 12% to 378000, well in which included 31000 from the acquisition and a 9% organic increase in total broadband connections.
On inorganic basis broadband penetration continues to increase up 220 basis points to 46%.
On slide 25, total cable revenues increased 16% and 71 million driven impart by the acquisition without the acquisition cable revenues grew 7% driven by growth in broadband connections from both residential and commercial customers.
Our focus on broadband connection growth and fast reliable service has generated a 25% increase and total residential broadband revenue.
Including organic growth of 4 million or 15%.
Also driving the revenue changes a 6% increase in average residential revenue per connection.
[noise] driven by higher value product mix and price increases.
Cash expenses increased 13% due primarily to cost related to the acquisition or 4% excluding acquisition due to increased employee expense to support the girls.
As a result cable adjusted EBITDA increased 20% to 24 million in the quarter, improving margin by 130 basis points to 34%.
On slide 26, we provided our 2020 guidance, which is unchanged from the guidance we shared at the beginning of the year.
We are pleased with our results in the first half of the year and even with some uncertainty related to the pandemic in the second half of the year, we remain committed to our strategic goals and financial objectives.
Our fiber builds are expected to ramp up in the second half of the year and we currently expect to be within the guidance range.
Look forward to updating you in the third quarter and now I'll turn the call back over to Jane.
Thanks, Vicky and before opening the call to questions I'd like to remind everyone. Once again that due to the fccs anti collusion rules, we will not be responding to questions related to any FCC auctions or sector and Jake now we'd like to open up the call for questions.
Thank you so much once again you may ask a phone question by pressing star one now on your telephone keypad Pos for one moment to come out of acumen and roster.
And we have a question from Rick Prentiss.
Yes. Good morning, Hope you employees and families are doing well as your business has during coven 19th.
Morning.
First.
Congrats can been great working with you I think I did 84 of those earnings calls with you and welcome LT to the public universe.
Thank you.
First question I have I want to look at the on the wireless side on the keep Americans connected side. So do I understand it right. That's at June Thirtyth 39000 subscribers that are on the numbers that are in keep America connected and how do you think that plays out through the quarter as far as what you think you'll be.
Able to convert those to.
Current pay or at least would pay plans.
Yes, Rick so far this dog chambers, so far that's going quite well I'm your towards a really as of last week, we had close to 80% of those customers were either current or they were on payment plans. Most payment plans ranged from 212 months. So that'll play out over time, but so far we're very pleased with.
With our ability to keep those customers.
From canceling orders are spending.
Great and I think when things that surprise me in the quarter roaming inbound roaming revenues came in a better than we thought we'd be concerned with Ah stay at home orders and people not traveling at might fall off more could some of that also be that people are working from home and that's kind of where your coverages in suburban Rural America, how should we think about trends.
As we look into the second half the year on inbound roaming.
Yes. Thank you you have a number of things that work I personally to roaming inbound roaming usage, both sequentially and year over year was all right and that we probably would have been up even more it's not a corporate 19. So certainly as we go into the third quarter, we have seasonality, we expect increases there and just general increases customers.
Some more data that's that's tempered a little bit with corporate 19. So I would say you don't work will continue to see increases in usage, but remember your that's off several more rate so.
That's we're looking at it as a lot about predictability obviously with.
And movie.
[music].
Okay, and then can you talk a little bit about the art off.
I know, it's an FCC auction, but it doesn't involve spectrum and any thoughts on.
What the prospects are fruit for hard off or would it might mean for a for the landline side of the business.
Hey, Rick its LT. Unfortunately, we get we can't address the questions about the art off because we're in a quiet period for that as well. So it's just flex.
Okay and was there a deposit made for the hard off it's really just you receive funds or the no deposit here just didn't quite period.
Just a quiet period.
Okay.
Figure that might be the case and last one for me can you kind of update us maybe LT I know, you're listening and learning but.
As we think about Fiveg, what do you see as some of the top use cases and business cases, and U.S. cellular territory for Fiveg.
Yes, Rick Thanks for the question. So I mean that initially when you think about fiveg is going to be huge benefit on the cost side cost per gig, it's going to become a lot more efficient to manage traffic.
And if I look at the just about quarter. The pandemic I did we just briefly covered this in our comments, but I don't want to leave it on unsaid data traffic up over 70%.
And the mix of that traffic right shifting from if you think about customers want to be covered where they work live in play big ships from work to live in slide so managing that traffic and managing the cost of that traffic could be critical in fiveg is going to help us a great deal there.
Talking about use cases initially you can think about the use cases as being around high speed Internet and providing fixed wireless broadband connections to our customers are we think there's a significant opportunity there and you can expect to see that portion of the business continue to grow.
Fast forward.
Truly long run.
Autonomous car a API in facilitating some of those really high speed low latency use cases is going to be critical.
And from that perspective, do we expect to see near term monetization of those no, but it's going to be table Stakes, having a strong fiveg presence.
Then in the mid term you can expect to see use cases around business business solutions think connectedhealth connected education.
We're gonna be ramping up our presence on the business side talk I'm showing no questions about priorities moving forward and certainly around topline growth business being a component of that topline growth.
As connected manufacturing Connectedhealth those kinds of use cases are gonna be enabled by Fiveg I think those will be starting to take shape in the coming years, and I think we're well positioned to take advantage of.
Great. Thanks, again, Ken will we'll Miss you enjoy your retirement LT looking forward to working for a long time.
Thanks, Rick Thanks.
Thank you we have a question from Phil Cusick.
Hi, Thanks.
Ken Let me Echo Thanks for your health and help to welcome aboard.
Can we sort of summarize just to go back to Rick's question on the pledge.
What do you feel like the sustainability of growth and a third quarter on on postpaid phones, you've got extremely low churn was in quarter overseas metal pickup I'm curious, what what you're seeing in terms of a piece of of customers coming in the third quarter.
So Phil this is LTL covered a very high level and then I'll pass it to doug's for a little bit of a detail a I mean, the from a from a traffic a perspective.
Now looking at year over year traffic in the stores being down around 20% did not slow improvements over time I expect that to continue to steadily improve as we get into the back half a year and so I would expect steady improvements study slow improvements from the guy.
So sadness switching perspective.
The key is gonna be continuing to keep churn under control and and making sure that we have strong performance in terms of hanging on to those customers that are interested in switching and so one of things were going to be watching very very carefully.
Switching and the churn dynamics to make sure that we don't see a spike in the back ended the year on that.
Doug on what you want to add any more detail every decision was released the pledged customers at June 30 to 39000 that were on the pledge that's less than 1% of our postpaid piece, so while not negligible its.
Manageable number and some of those customers will turn it off and so we expect to see the slight tick up in involuntary churn in the latter half of the year, but as I mentioned earlier.
Having good experience with having those customers.
Even arrangements and certainly exceeded our expectations, where we were at March pledge. So.
So far so good on that.
Okay.
Mike Capex running pretty low versus your your guide what's your thought on ramping.
Pretty quickly into the back half.
Good morning.
Capex I think Doug gave the guidance for the for the year, we're going to stick to that are initiatives vultee in Fiveg. We're sticking to the plan. We're on track and fully expect to complete goes as as we we stated earlier in the year.
Okay, and Mickey I heard your comments about record fiber deployment in the back half.
Can I follow up on your comment around commercial revenue from here method CLX were real challenge, what's happening with a with us as we got through the quarter.
So on the commercial side you are in our commercial revenue losses have then primarily all due to the sea lice.
Declines that we have been seen and I expect those trends consent to continue in the second half of the year, which have all been incorporated into our guidance.
As you know our focus has really been on her fiber deployment strategy. There is a opportunities as we continue to look across our markets to continue to fortify parts of our business with the with the fiber, but you'll see you'll see us it feels like a declines continue.
Okay. Thanks, guys.
Thank you we have a question from Simon Flannery.
Great. Good morning, I'm, Ken best wishes for the future you'll be missed LT welcome it'd be great. If you could talk a little bit about what attracted you to U.S. settlement or you have been in the industry for awhile and then looked at the.
The the landscape and I think there's there's a concern in some parts about regional players in this environment, you've obviously talked about some of the growth opportunities, but would be great to see what's the potential you see in your ROE and then more specifically on fixed wireless you see an opportunity. There can you help us a little bit with what the products Gonna look like in turn.
So speeds, we've obviously seen a successful one gig over on the Tds side and as size that <unk> addressable market for you. Thanks.
Yes on it thanks to the question. So let me start kind of what drew me to the which for me to the company I would point a few things.
The first is just be culture, and the people Ken talked about it in his in his exiting comments. This is a very special place.
And I've been blown away by the team led by the folks I get to work with and by the truly long term view in terms of investment.
In in terms of how we think about assets and opportunities it's a special place.
A couple that culture with the assets that we had in place so strong spectrum position strong tower position strong distribution physician.
So I put those two things together in terms of strong culture, and we've seen that in terms of just the results.
Here in the quarter.
Couple that with a really strong set of assets and I think we have a significant growth opportunity.
And you know you mentioned regional players I actually view the opportunity for US is that we can be more granular we can be more targeted which can be more community focused I think that ability to be it is targeted to be a nimble is what can help us grow I'm in the future and so.
Couple of those the culture, the assets and really the opportunity for growth.
What is what drew me that the company is what I'm excited about.
But talking through the fixed wireless opportunity, let me break out in general how I think about it.
This is the beautiful thing about this product is that it it's a great way to monetize excess capacity.
So were you have excess capacity on the LTV side, which is what we're monitoring monetizing today.
We're seeing good revenue opportunities and there and were able to help customers and get customers connected in areas, where maybe cable either doesn't address read very limited presence.
And Mike talked a little bit about Fiveg rollouts.
Rolling out millimeter wave.
So as we start to densify the network millimeter wave, that's going to create incremental opportunities for capacity.
And excess capacity to go monetize and so you can expect to see higher speed product brought to the market price point to be determined some of that will will obviously very based on competitive circumstances, but the thing I love about that product is that ability to monetize excess capacity the same point bill productive customer.
So what you see as even right now as we have the fixed wireless broadband product on LTV as you add customers a lot of times. Those customers. Then also bring with them postpaid lines and so it's an attractive opportunity not just to go that product line.
But you're going to businesses.
Great I mean, do any sort of sizing assess hundreds of thousands of potential households, or what's the right way to think about the opportunity.
I'm going to punt on that one a little bit Simon only from a from a timing perspective, both my time with the company.
And also I want to let the chemicals the competitive in the network environment shape itself out. So that's something I'm happy to provide some guidance would in future calls when he punt on that one for now.
Got it great. Thanks for the color.
Thank you we have a question from Sergei.
Good morning, guys Sixtyl Chem, congratulations on the retirement and best wishes and LT congratulations on becoming CEO for you a seller hub. My first question as a follow Ti or if you could talk a little bit about your top priorities so top of.
Active as a new CEO over the next 12 to 18 months.
Sure So again not to meet you so.
No there was a wall Street Journal article out this morning, entitled Congrats you're the new CEO, maybe someday you'll get to meet your employees.
So that's that's a little bit of the circumstance I'm in right now so right now I have a pretty near term priority around trying to get creative ways to.
The team get to know the organization fits into the culture.
Coupled with that I have a near term priorities just around the health and safety you more team and the health and safety of our customers.
And so just making sure that we're keeping our teams they are our store environment.
Is it safe one for our customers.
No I'm thinking your question is probably a little bit more longer term. So let me talk about that for a bit.
You know you look at the near term priority, let's call. It mid term priority, we've got to draw start driving topline growth and.
And so driving that topline growth.
Accomplished Bose.
Organic.
Blocking and tackling of continued good work in driving gross adds and keeping churned out.
As well as starting to expand our presence in some of these areas, where we currently have a presence, but the presence maybe a little bit limited I would point to things like our prepaid business.
As well as our PTC.
You can expect to see increased focus in those areas.
What are the things I'm interested in exploring as well the opportunity for more robust partnerships. So what did that partnerships on the product side or on the infrastructure side I think you have some opportunities there.
And finally I had a priority is funding that growth. We're gonna have to continue to get disciplined around margin and around capex efficiency.
So you can expect to see continued action on the Opex and Capex side to make sure that create.
To fund that group.
Well I point to those three certainly hopefully that's helpful laying out a little bit disruption.
Right. Thank you and my second question.
It's probably both loyalty and for Doug Timbersled. So in regards to towers. So so I guess big picture LTL coming from and organizations that.
Think of sold most of its doors youre coming into an organization that has a significant dollar portfolio I think that's lifestyle portfolio. So maybe if you could share your thoughts on how you plan to maximize the value as a sizeable doll portfolio kind of take into consideration is a company strategic and operational priority.
But also considering current a dollar what do they sense in the U.S. and decided that you do have a large dollar portfolio and full dogs.
I think you guys have been working this outside sources.
So that the market sell portfolio. So could you provide maybe a brief update.
On that front than have you seen an improvement in lease up rates and any kind of financial operating metrics and they've got still sell portfolios and you could share.
Thanks for the question so.
Broadly right I would point you back to my opening comments around being hired to grow the business.
And we have as you said a significant quite attractive tower.
<unk>.
I think that gives us a level of operational flexibility.
And I plan on taking advantage of operational flexibility to help through business.
The second piece, though that we also need to be working on sweating those assets right and so we have an opportunity I think maximize the value from that tower portfolio.
Not necessarily data on a on it on an acquisition, but based on actually going off and monetizing those making sure. We sweat those assets carefully it's not going to be a secondary priority. This morning.
Does that mean that we won't ever looked at transactions on those towers or financing on those towers no. I mean, I think that's something we'll continue to evaluate the future [noise].
Referenced in his opening comments around opportunities around financing, let me tell you. It's not my top priority My top priority you using those towers and the operational flexibility they give us to go with [noise].
Doug when he hated to you to answer the second portion of this question.
Yes.
So the partnership's started really the first quarter 29 PM. So we're we're about 18 months into it it's going quite well as we mentioned during my comments total revenue year over year group grew 60%.
And that's really beautiful Oh volume increased.
6% increase and number of tenants in our towers as well as average rate increase so that's all going very well I will say you in the first half of.
2020, this was due to colder theres a little bit of slowed on applications that may play out.
The 2021, but.
So far so good are really experienced nice growth.
Great.
And my last question is a core Vicki. The obviously you had the latest along a broadband connection girls both on the wireline side and on the cable side could you talk a little bit about kind of as they demand or how does the gross additions some net additions.
So are striking maybe which spans our customers primarily picking up and also just in general obviously is a pandemic provided to boost to your performance, but also what other kinda effect or is the thing can seem to think Oh, there is a girls and boys.
Rather than connections as a quarter.
Yeah sure. Thank you Sergei Yeah, we were really pleased with our second quarter.
Characterize it as having you know early on we had an initial surge of demand in reaction I think forget pandemic us as people moved into their work at home environment, We had.
Not only did we have the strong growth in connections across both wireline cable.
Six six percentage that wireline, 9% on a same store basis on the cable side. We also increased our residential ARPU they were up significantly across both businesses and what's driving that Greg.
Consumers, calling in for higher crowded so we have product like increases in our ARPU was in the second quarter as well as as well as the year over year price increases that went into effect in January so really strong and and after the initial scourge I would also say that.
Our growth right now is that's kind of leveled off but added at our expected growth.
Expectations, and we expect us to continue through the year.
Fiber of course is is really the driver behind a lot of the growth within our wireline side of the house are out of territory in new markets and then our investment in DOCSIS three dot one that providing one gig speed and our cable market predominantly most of our customers are on.
100, 300, Megabits products and service, because [laughter], but certainly seem to be a customer base starting to drive up.
Who taking one gets too.
Great. Thank you.
Jay we will take one more question. Please.
Yes, Ma'am our next question comes from Michael Rollins.
Hi, Thanks, and one of the also extend my thanks, and best wishes to you Ken and welcome LTV I'm, just really into some of the discussion.
During this call as you develop the go forward strategy to grow the company.
Are you going to stick with the traditional pools and the toolbox like distribution advertising pricing.
Or is there an opportunity to contemplate more expensive options that would range from some kind of alignment with the national carrier be the partnership Alliance.
Or affiliation and you know related to that question and given what you were describing about fixed wireless.
His U.S. cellular considering tearing down the walls of identifying itself has just a wireless business and and is it possible that the companies developing a more comprehensive broadband business you may even ticket page from Tds.
Telecom and maybe even deployed no fiber to the whole more to businesses in the markets that you Sir thanks.
Yeah, Michael Thanks for the question, so I would highlight near term.
We have plenty on our plates in terms of driving organic growth.
And I think we have a lot of opportunity in driving organic growth and by organic by the way I mean, your definition of let's call. It the traditional methods of optimizing distribution optimizing marketing and so on.
In the longer on.
I think theres a lot of opportunities to get created with those partnerships that you that you highlighted.
I'll point, you to a deal that I actually drove in my previous role as CEO. They T., Mexico, where we saw in Dave I would argue quite creative deal with 10 to 20, <unk> in Mexico around infrastructure sharing and network sharing insulin.
Obviously, the Mexican market in the market here in the U.S., both competitively from a network perspective entirely different so don't don't take that as anything more than directional.
But I think there's a lot of opportunity to be creative and expansive and the way that we think.
The great position that were in here and I have to give 10 and Steve Campbell lot of credit is that we're in a very strong operational and financial position healthy balance sheet.
We have a disciplined approach and that's a luxury or for a guy like me when I think about the opportunities that creates in the long run so near term I would argue there's going to be just Chris blocking and tackling a long term I'm certainly open to a whole variety of different ways to create opportunities.
And quite frankly to make sure do we keep serving our customers are the appetite that our customers have for high speed data.
Vicki went through on the wireline side, what they're seeing.
Over 70% increase in our network on the mobility side, there's a fairly insatiable appetite for data I think it's going to create a lot of opportunity for us in the long run.
So thanks for the question I very much appreciated.
Thanks.
[noise] are there any other concluding remarks.
Yeah, we were just like to thank everyone for joining us today and look forward to some follow up conversations.
Thank you.
We will now conclude the call [noise].
I'd like to thank everyone for dialing in presenters as well have a wonderful day.