Q2 2021 Telephone and Data Systems Inc and United States Cellular Corp Earnings Call
Okay.
Good day, Thank you for standing by and welcome to the Tds and U S held at our second quarter earnings results at this time, all participant lines for the listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask the question during the session you will need the press star 1 on your thoughtful and keypad. Please be advised that today's conference is being recorded.
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Although like the hand, the conference over to Jane Mccahon Senior Vice President Corporate relations. Thank you. Please go ahead.
Thank you Blake.
Good morning, and thank you for joining US today, we wanted to send out our very best wishes that you and your families are well.
I wanted to make you all aware of the presentation, we've prepared to accompany our comments. This morning, which you can find on the Investor relations sections of the Tds and U S cellular websites.
With me today and offering prepared comments on.
And from Tds, Pizzeria, Executive Vice President and Chief Financial Officer.
From U S cellular L T terrible President and Chief Executive Officer, Doug Chambers, Executive Vice President and Chief Financial Officer, and from Tds Telecom, Vicki Vela credit Senior Vice President of Finance and Chief Financial Officer.
This call is being simultaneously webcast on the Tds and U S cellular investor relations websites. Please see the websites for slides referred to on this call, including non-GAAP reconciliations.
We provide guidance for both adjusted operating income before depreciation and amortization or OIBDA and adjusted earnings before interest taxes, depreciation and amortization, our EBITDA to highlight the contributions of U S cellular wireless partnerships.
Tds and U S cellular filed their SEC forms 8-K, including press releases yesterday, and then we filed our 10-Q this morning.
As shown on slide 2 of the information set forth and 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.
Please review the Safe Harbor paragraphs in our press releases and the extended version and are included in our SEC filings.
In terms of our upcoming IR schedule of 5.3 the Investor Relations team is attending the Morgan Stanley Media and communications corporate access day on August 12.
And as always our open door policy can now be an open door phone or video policy. So please reach out to us if you're interested in speaking with us.
And also we want to call your attention to our recently refreshed and updated environmental social and governance E. S. G website, and additionally in order to advance our ESG strategy. We recently conducted of materiality assessment to help prioritize and score ESG opportunities and risks from the perspective of.
On the internal and external shareholders stakeholders.
When finalized we will publish the results on our website.
Before turning the call over I want to remind everyone that due to the FCC's anti collusion rules related to auction 110, and we will not be responding to any questions related to spectrum auctions and.
And now I'll turn the call over to the Pizza right I see.
Thanks, Jane and good morning, everyone before speaking about the balance sheet and our funding strategies I wanted to recognize all of the actions that both of our business units are taking to lead to higher returns and stronger businesses over the next several years.
Turning to the income statement I want to call your attention to a couple of unusual items first our effective tax rate was a negative 48, 9% during the quarter due primarily to the reduction of certain tax accruals and it was part of redeeming some of our higher cost debt, we recorded an additional $36 million and noncash interest expense.
It's 20 million of which was the U S. Cellular and this was the write off unamortized debt issuance costs from prior bond transactions.
And we've discussed on past calls.
Maintaining financial flexibility is 1 of the pillars of our corporate strategy over the years, we've worked to retain and relatively low level of leverage levels long dated maturities sufficient undrawn revolving credit facilities and significant cash balance as well at the same time, making sure we have the financial resources, we need to fund our businesses.
And you can see on slide 4 at the end of the second quarter tedious continues to maintain a solid financial position, including ample available funding sources, consisting of cash and cash equivalents and available available credit facilities, which is especially important since you of cellular and Tds Telecom are both currently and investment cycles.
With U S cellular investing and network modernization, 5 G and spectrum and Tds telecom and aggressively investing in fiber expansion. We will continue to look for innovative ways to finance these investments while preserving our credit rating.
Turning to slide 5 I also want to call your attention to all of the work that has been done to lower the average cost of our financing as you can see through June 30, we've redeemed over $1 billion of debt with a weighted average cost of 7.1 per cent and replace it with debt with an average cost of 4.8%. This results on a run.
Rate of $25 million of annual coupon savings on the redeemed debt.
And then earlier this week, both Tds and U S cellular announced additional redemptions of a day of high cost senior notes and this will raise the amount redeemed by over $450 million to a total of almost 1.6 billion.
Also earlier this week and shortly after we announced that we were calling the U S cellular nodes and planning to fund the transaction by drawing down on our E. P. Securitization Moody's affirmed T. S. T D S. As corporate family rating downgrade of the remaining U S cellular and senior notes. The reason for this downgrade reflects the fact that the new E.
And I P debt that will be taken on the fund. The redemption comes ahead of the remaining notes and right of payment. The downgrade of specific just to those notes not to the company and general Moody's views. The recent refinancing steps to lower the cost of the balance sheet as credit positive.
And some we believe both business units of a lot of growth opportunities and we are ensuring that we have the financial resources to fund them. While at the same time, we're continuing to lower the average cost of finance them I will now turn the call over to L. T. L T.
Thanks, Pete and good morning, everybody.
It's been about a year since I joined the company and I continue to be just blown away with the team and the culture and U S cellular and I want to thank all of our stakeholders and that includes everybody on this call for the support and the and put over the past year.
But turned the page 7 and our strategic priorities remain simple and are designed to drive growth and improve return on capital over time.
And we're about halfway through the year, and we're making really good progress towards these priorities.
And I'll, let Doug cover the operational and the financial highlights of the second quarter.
And I'd like to provide a couple of thoughts on these strategic priorities.
And on top of mind for me right now as the competitive environment.
Seen some really aggressive promotions out there for both new and existing customers and as Doug will touch on it had an impact on our postpaid subscriber results for the quarter.
We are maintaining our focus on profitable growth and we're leveraging our regionally focused strategy to test different offers to help us hone in on the right balance between subscriber growth and <unk>.
The ability.
And I've talked about this in prior calls, but I believe 1 of the benefits of having non contiguous regions.
And the ability to test different approaches to see what resonates with our customers.
And you see this and how we're approaching the marketplace right now.
<unk> got some very aggressive offers to drive switching and certain markets with more upgrade focused offers and others.
And we're going to continue to work. These trials. So do we have the right approach when we get to the main selling season later this year.
I spoke to you last quarter about some of our new initiatives to drive growth and our business and government and prepaid segments. We.
We made some changes to our prepaid offerings, which led to really strong prepaid results this quarter the.
And business and government segments of longer term effort, but I'm beginning to see some encouraging signs.
And I feel confident and our ability to drive growth, there and particularly in the Iot and the private networking space.
So a few words on our network vision network performance is a hallmark of our value proposition, we're continuing our.
Network modernization program and on a multi year 5 and she deployment.
The majority of our traffic is now carried by sites that up 5 G deployed.
This helps maintain our network leadership and it also brings down our costs.
We continue to be optimistic on the use of millimeter wave spectrum for fixed wireless access.
And we're continuing to tracks of work 1 on technology and 1 on market demand.
The technology testing and frankly is exceeding our expectations, we've been working with our partners are and extending millimeter wave distances.
And most recently, we achieved another world record using our 5 millimeter wave spectrum achieving.
Achieving near gigabit speeds over a distance of 10 kilometers.
This milestone can potentially bring extended range 5 G service with massive capacity and low latency and even more of our footprint.
And that includes more rural areas.
On the market demand side, we're continuing our 5 millimeter wave high speed Internet trials, we've seen some early encouraging results.
It's very clear the customers and our areas are looking for alternatives for the current providers and the marketplace.
Turning briefly to Washington, I'm encouraged by the recent progress made on bipartisan infrastructure legislation and.
And I joined other companies and the business Roundtable and encouraging passage of the proposal.
I'm encouraged that the proposed legislation sets aside funds for both infrastructure and affordability.
Both of those are going to be critical and bridging the digital divide.
Do we just a bit more specific I'm, particularly encouraged that the requirements for infrastructure funding don't require a symmetric speeds.
Would have been a disaster for efficient funding of rural broadband.
Asymmetric requirements allow any network technology to compete for funding and that includes wireless and <unk>.
Bundling those wireless build outs helps both fixed and mobile use cases.
And hopefully and I am hopeful that this infrastructure legislation can be and example of avoiding partisan politics, and putting America and Americans burst.
Finally, with the rollout of the vaccine I recently had more opportunities to get out and the field visit the stores stocked customers and talk to your associates and person.
Hopefully, we'll continue to see progress on the vaccine and so we can maintain the positive momentum over the past few months.
Our field teams and the stores and the network and been doing just a tremendous job keeping our customers connected and some really challenging circumstances.
And for the portion of our workforce that has been working remotely.
Just announced our return to office approach, we'll be focusing on purposeful interactions instead of requiring a certain number of days and the office.
We hope this will strike the right balance between in person time for culture of reinforcement.
And so acknowledging the productivity and coordination lessons learned from the pandemic.
Personally I'm just looking forward of meeting more members of my team for the very first time and person.
And with that Doug I'm going to turn it over to you to cover the details of the quarter.
Thanks L. T. Good morning, let's start with the review of customer results on slide 8 postpaid handset gross additions increased by 16000 year over year due to higher switching activity, which was depressed last year as a result of the unfolding pandemic.
The ability to attract switchers remained flat year over year due to aggressive industry wide promotional activity on handsets.
We saw connected device gross additions declined by 4000 year over year the.
This was driven by lower gross additions of internet products, such as hotspots and tablets compared to the prior year when we experienced an increase in demand due to COVID-19.
The declines of the hotspot and tablet sales were partially offset by an increase and connected watch gross additions.
Total smartphone connections increased by 15000 during the quarter and by 60000 over the course of the past 12 months.
And that helps to drive more service revenue of given that the smartphone <unk> is about $20 higher than feature for an hour pool.
Additionally, I want to call out of our strong prepaid results, which were driven by changes to our prepaid offerings.
And our prepaid base increased 11000 due to an increase in gross additions combined with the decrease in defections.
Next I want to comment on the postpaid churn rate shown on slide 9.
Postpaid handset churn depicted by the blue bars, with 0.88% up from 0.71% of a year ago.
This was driven by voluntary churn, which continues to run at higher year over year.
As a result of increased switching activity and aggressive industry wide competition.
Total postpaid churn combining handsets and connected devices was 1.11% for the second quarter of 'twenty 'twenty 1.
Higher than a year ago as we have also seen churn increase on connected devices due to certain business and government customers disconnecting devices.
Were activated during the peak periods of the pandemic and 2020.
Now, let's turn to the financial results on slide 10.
Total operating revenues for the second quarter were 1.0 of 1.4 billion and increase of $41 million or 4% year over year.
Retail service revenues increased by 28 million to $686 million.
The increase was primarily due to a higher average revenue per user, which I will discuss in a moment as well as an increase in average postpaid subscribers.
Inbound roaming revenue was $28 million that was the decrease of $13 million year over year, driven by a decrease and data volume and rates.
1 of the factors contributing to the state of volume decrease is the merger of sprint and T mobile and the migration of sprint roaming traffic to T Mobile's network.
Other service revenues were $60 million and increase of $6 million year over year, including a 6% increase and tower rental revenues.
Finally, the equipment sales revenues increased by $20 million year over year due to an increase in units sold and an increase and accessories sales as a result of higher volume, partially offset by a decrease and the average revenue per unit and large part as a result of and increase in promotional activity.
<unk>.
We engaged and aggressive promotional activity during the second quarter of 2021 to remain competitive with the industry, particularly for switchers.
A portion of the resulting and promotional costs reduce equipment sales revenues and increased loss on equipment, which represents equipment sales revenues.
Cost of equipment sold.
In addition, Bosch on equipment in the second quarter of 2020 was mitigated by the impacts of the pandemic, specifically lower gross adds and less aggressive promotional activity.
As a result of the combined impact of these factors wassa and equipment increased $20 million year over year from a positive margin of $2 million in 2020.2 a loss on equipment of $18 million in 2020.1.
This change and loss of equipment was the primary driver of our decline in profitability year over year.
We expect the aggressive promotional environment to persist for the remainder of 2021 and our full year guidance reflects the corresponding financial impact.
Now a few more comments about postpaid revenue shown on slide 11.
Average revenue per user or connection was 47 and 74 for the second quarter up of dollar 50, or approximately 3% year over year.
On a per account basis average revenue grew by $4.55, or 4% year over year.
The increases were driven primarily by favorable plan and product offering mix and increase and regulatory recovery revenues.
And the increase in device protection revenues and.
And an increase and overage and other fees, which were waived in the prior year to assist customers during the COVID-19 pandemic.
Turning to slide 12, as we continue our multiyear network modernization and <unk> rollout control of our towers remains critical.
The only of our towers, we ensure we maintain the operational flexibility to add new equipment and make other changes towards cell sites without incurring additional costs, which is very important, particularly given our current technology evolution.
As you can see on the slide with the assistance of our third party marketing agreement, we have seen steady growth and tower rental revenues as.
As I mentioned second quarter tower rental revenues increased by 6% year over year, we will continue to focus on growing revenues from the strategic assets.
Moving to slide 13, 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 $218 million.
The decrease of 7% year over year.
As I commented earlier total operating revenues were 1.0 of 1.4 billion, a 4% increase year over year.
Total cash expenses were $796 million, increasing $58 million or 8% year over year.
The total system operations expense increased 4% year over year.
Excluding roaming expense system operations expense increased by 7% due to a higher circuit costs and cell site rent and maintenance expense.
Roaming the expense decreased $3 million or 7% year over year, resulting from lower voice roaming while higher data usage was largely offset by lower rates.
Cost of equipment sold increased $40 million or 19% year over year due to an increase in units sold and an increase and accessories sales as a result of higher volume.
Selling general and administrative expenses increased $11 million or 3% year over year, driven primarily by costs associated with supporting enterprise projects billing system upgrades and federal Universal Service Fund expense, which is fully offset and service revenues.
Turning to slide 14, I'll touch on the 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 quarter was $267 million, a decrease of $13 million or 5% year over year.
Equity and earnings of unconsolidated entities increased by $3 million or 7%.
Next I want to cover our guidance for the full year 2021for.
For comparison, we're showing our 2020 actual results.
For total service revenues, our guidance range of 3.05 to 3.15 billion remains unchanged.
For adjusted operating income and adjusted EBITDA, we are maintaining our guidance ranges of $852.950 million and 1.0 to 5 to 1.1, and 2.5 billion respectively.
As mentioned earlier this reflects our expectation of of continued highly competitive environment for the remainder of the year.
For capital expenditures, we are also maintaining our guidance range of $775 million to $875 million and we have provided a breakdown by major category.
I will now turn the call over to Vicki build the crowds Vicky.
Okay. Thank you Doug and good morning.
And everyone.
I am pleased with our financial results for the second quarter and through the first half of the year.
And we are tracking to our guidance expectation.
We continue to see strong broadband growth that has accelerated since the start of the pandemic. We grew residential broadband revenue, 16% in total in the quarter driving total residential revenue growth of 10%.
Overall, we grew our top line, 5% well planned investment spending on new market launches caused our adjusted EBITDA to be lower than prior year.
Also notable during the quarter was strong average residential revenue per connection growth of 7% on price increases and product mix as customers take higher scheme.
We continue to experience strong tailwind, which are driving increased broadband adoption. For example work at home environment continue bipartisan support for broadband and driving more federal and state opportunities and population migration and our most attractive markets is driving strong.
And on household growth.
During the quarter, we grew our total footprint, 6%, which increased strong organic household growth across our market.
Turning to the slide 17, we remain committed to the strategic priorities. We have been focused on for several years as previously discussed our primary objective is to generate growth.
Investing and our high speed broadband services, we have a multifaceted approach and the growth that includes leveraging existing networks and constructing greenfield fiber and targeted location.
We are very pleased.
We've invested in fiber in our markets.
The purion market share and in our expansion markets, we are seeing strong customer pre registration.
In addition, we continue to drive faster speeds and on more rural incumbent market by building to meet our a cam obligation and.
Utilizing state broadband grants.
On slide 18, total residential connections increased 2%.
The residential broadband growth in new and existing markets.
Partially offset by a decrease and voice and video connection.
Total telecom and broadband residential connections grew 7% in the quarter and we continue to fortify our networks with fiber and expand into new markets.
We are on track and our network construction under the a Cam program also helping to drive growth and our incumbent market.
Overall higher value product mix and price increases drove a 7% increase and.
Average residential revenue per connection.
On Slide 19, you can see the broadband connection growth across all markets, our focus on broadband connection growth and fast reliable service has generated a 16% increase and total residential broadband revenue.
We are offering up to 1 gig broadband speeds of 56% of our total footprint, including both our fiber and DOCSIS 3.1 market.
The 1 gig product is an important tool that allows us to defend market and to win customers and new markets.
And areas, where we offer 1 gig service, we are now seeing 21% of our new customers, taking the superior product.
Turning to slide 20, we have augmented our success growing broadband with our Tds TV offering.
Our next generation video platform and enhancing the customer of viewing experience and how does the bundle of these products help us to increase our broadband market share and we can for churn.
Video residential video connections were nearly flat wireline growth of 6% driven by our expansion markets nearly offset losses and the cable market video continues to remain important to our customers for example, we.
We are experiencing a 40% video attachment rates on every broadband connection and our wireline markets, where we offer IP TV services and that's across half of our wire line footprint.
Footprint nearly half of our wireline footprint. Our strategy is the increased video connections through the offering of our cloud based Tds TV plus product.
Rollout of this product currently covers 60% of our total operation and.
Clothing, our cable markets.
Moving to slide 21, we continue to be very bullish on our fiber strategy and how it will transform the Tds telecom and a very meaningful way over the next several years.
Given the attractiveness of this opportunity.
And the heightened level of participation by other over of builders, our sense of urgency has increased.
And we therefore are upsizing the number of expansion markets, we expect to build over the next several years as well as increasing our fiber builds within our existing footprint.
For competitive reasons, we are not specifically name and the market.
Or the number of service addresses yet.
And any additional spending this year is well within our guidance.
We plan to announce these additional markets. After we signed construction agreements and launch our pre marketing and sales efforts publicly.
Fiber is the most economical long term solution to deliver the best broadband experience, we continue to refine our market selection criteria and are highly confident and this process.
Now, let's turn to slide 22.
How is the progress we are making this year on our multiyear fiber footprint expansion, which includes fiber into the incumbent market and also expansion into new markets.
As a result of the strategy, 39% of our wireline service addresses are now served by fiber. This is up from 33% a year ago.
This is driving revenue growth, while also expanding the total wireline footprint, 8% to 873000 and service addresses.
Moving to slide 23, we have highlighted the total service addresses for the clusters that are in construction and we are actively marketing.
We recently announced the expansion of fiber and to Spokane Valley, Washington, adding 33000 and service addresses to our plan and the small Tam and clustered and.
In total we completed 338000 and fiber service addresses through the second quarter.
And are working to build out the footprint and these announced markets to 657000 and service addresses by 2024.
Performance of our launched fiber markets continues to meet or exceed our business cases.
Year to date, we completed construction of 31000 and fiber addresses added 18000 and service addresses and the Florida.
This progress is slower than planned and is putting pressure on service address delivery on the back half of the year. The delays, we are seeing and construction could impact our ability to deliver our goal of 150000 and service addresses by the end of the year, but we are confident that will still complete a substantial portion.
And of our plan.
We also continue to proactively manage construction and customer equipment inventory demands, where we are seeing lengthening lead times with our suppliers.
We will continue to update you on our progress throughout the year.
On slide 24 total.
Revenue increased 5% year over year to 252 million largely driven by the strong growth and residential revenue, which increased 10% and total.
The chart includes residential revenue mix, which highlights the increasing contribution of our expansion markets.
And combat wireline markets also showed impressive residential growth of 7% due to increases and broadband connections as well as increases from within the broadband product mix.
Really offset by a 4% decrease and residential voice connection.
Cable of residential revenues grew 10% of.
Also due to increases and broadband connections as well as product mix.
Commercial revenues, which continued to be impacted by select decline decreased 4% and 46 million on the quarter.
And wholesale revenue decreased 3% of $45 million.
Due primarily to reductions and special access and the incumbent wireline markets.
So let me sum up the combined financial results for the quarter.
As shown on slide 25.
Total revenue increased 5% from the prior year of growth from our fiber expansion and increases and broadband subscribers exceeded the decline, we experienced and our legacy business.
Cash expenses increased 10% due to both supporting our current growth as well of spending related to future expansion into new markets, which is not yet reflected and our revenue.
Future market costs include direct costs, such as sales and marketing real estate and technicians and addition to shared service costs necessary to support new market growth.
As a result, adjusted EBITDA decreased 7% to $78 million.
As expected.
Capital expenditures increased 33% from last year to 99 million of plans.
We continue to increase our investment and fiber deployments and the success based spending for new customer and stuff.
On slide 26, we provided our 2021 guidance, which is unchanged from the guidance we shared at the beginning of the year.
We expect expenses and capital expenditures to ramp up and the second half of the year as we continued to execute on our fiber expansion strategy and.
And we expect to end the year within the guidance range.
I want to express my gratitude to all of associates for their dedication to the success of Tds Telecom are positive quarterly results are a product of your hard work.
Thank you and with that I'd like to.
And I look forward to updating you on the third quarter and now I'll turn the call back over to Jane.
Thanks, Vicky operator, we're ready for questions at this point.
Thank you as a reminder to ask the question you will need the breast and lung and 1 on your telephone again that is sort of want to ask the question to the other question just press the pound key.
Your first question comes from the line of Rick Prentiss from Raymond James Your line is now open.
Thanks, Good morning, everyone.
Good morning, Rick.
Okay.
And we'll start on the wireless side L. T. It's been a year as you pointed out since you've been there 1 of the things you mentioned early on was the thought the partnerships.
Couldn't help.
The U S cellular's kind of service revenue growth and return on capital objectives, I'll tell you, it's a little bit on what kind of partnerships, you're seeing out there that might make sense and if you could maybe also opine on 1 of the pros and cons as you look at the AT&T and dish deal that was announced recently.
Thanks, Rick let.
Let me let.
Let me start with partnerships I think the partnerships in 2 ways and partnerships to to grow revenue and partnerships to manage cost and to manage capital more efficiently more efficiently.
On the revenue side, we've moved forward with a number of of partnerships.
On the way to think about these just and it's kind of across the business is a lot of these are smaller so just as an example, right.
Substantively moved.
Our path forward on new stores overdue, our local dealers our retail organization of signed on a number of new dealer partners.
And we're co investing with them. So we can grow our footprint share of the cost share of the benefit on.
On the business side, we signed a number of a number of partnerships to bring new solutions to bear and I'll use..1 example, we announced just yesterday around G. O tab of G. O tab is the fleet management service.
I believe it's 1 of the best fleet solutions and the business.
We're excited to partner with them gives us another product to sell to our business customers, and obviously growth and revenue growth and margin.
On the infrastructure side on the cost side.
And those partnerships take time, we are and a variety of different discussions I'll just point briefly of the dish MLA that we sign which I think is a pretty good example of the partnership.
Right. We have we took our we've taken our tower business.
And I talked about this on previous calls and so I won't get into too much detail unless there's interest, but we really pivoted our tower business too to serve the potential co location customers.
1 of those of the dish and we signed an MLA with them I can't get into the details on that but we're bullish about how that is going to help us both drive revenue, but more importantly drive.
Drive better utilization of our assets.
So I feel good about the past the weird and we've been on with those partnerships I think theres more to come.
We continue to look for good ways to share investment share.
Share of revenue growth share margin expansion and I think we have a lot of opportunity to do so.
Let me pivot to the AT&T and dish deal.
You asked about that.
You know theres been a lot written about that deal I think my take on it is 2 fold.
The first dish has announced they're going to build the national network.
They've got relatively aggressive build out targets that they have to hit.
So it's pretty logical for them to try to find a partner.
And in order to supplement that build out and to provide them coverage for their subs and so from a dish perspective, it's entirely logical to do it.
From an AT&T perspective, obviously I don't know the details of the deal, but if I'm and AT&T shoes, I would say, okay. It's not me, it's going to be someone else. So.
And so it makes sense for us it makes sense for for AT&T to do it.
I think both sides create opportunity for US right, we have coverage, where AT&T does not and.
Provides us an opportunity to work with dish.
And on the flip side of the dish builds out their network I think theyre going to have capacity. The we can take advantage of and bring our cost and bring our capital build out down and <unk>.
So I think it's a I think it's a logical deal and I think it creates opportunities on both sides for U S. Cellular.
The expense.
Also you've touched on a couple of times splits wireless access.
It seems like you're Trialing. It now when do you move and you talked about the technical side of the market demand side. When do we think you could move from Trialing to actually launching and what's the sort of the addressable market is there out there and why would somebody choose.
U S cellular.
So we haven't announced the launch date from the from a broader product position perspective.
But the but certainly if the trials go as as we're seeing them go so far.
And I expect this to be of product do we have and the market certainly by next year.
Generating some some meaningful opportunity for us.
Your question of where is the market opportunity is exactly the thing that we're trialing.
And because there's a.
There's a there's a bull case and the bear case to this the bear case is.
Substantive fiber expansion.
So moving from what is currently.
And best fiber inside of municipalities and that starts to move out.
Coupled with satellite moves from being a.
Truly ultra rural solution and the promise, which is what it is now.
2 a meaningful product that delivers meaningful speeds and meaningful capacities to consumers.
And in that World.
On the opportunity for fixed wireless is.
I still think it's meaningful but it's not as large.
Theres, an alternate theres, an alternate path forward, which is a fiber does not.
Expand broadly for.
From from from municipalities Saturday.
Satellite remains what it is today ultra rural and a promise of future speeds and future capacities.
And that creates a lot of opportunity for us and what I will tell you is that the the initial market trials are indicating that.
I can't get into details, but the take rates that we've had just on our pilot programs are higher than I expected with.
That tells me is that the customers are eager for an alternative to cable.
And are eager for an alternative to the other other solutions that are out there from a from a rural perspective.
And so I think the wireless.
Broadly can provide a really compelling alternative for.
For home connectivity and not just rural areas, but call it sub urban areas.
And then why should they pick U S. Cellular is an alternative for that well I would argue that our technical trials and where.
And we're setting the world Records in terms of the speed that we have I don't think of Theres any 1 better than we are in terms of providing connectivity to rural America, and so I think we'll be and the driver's seat when it comes to offering that the offering that solution to our customers.
Once were once we're finished with the the technical trials, which have more to do with product innovation and by the way. So for example of how to think about taking.
Taking of external antenna on the home getting the signal inside the home getting it propagated and so on.
And then does the technology work technology works.
Miles of proving that out and so I'm optimistic about it timing TBD, but our current course and speed I, certainly think it'll be it'll be in the market and a compelling way at least starting next year.
Okay. Thanks, guys.
Yes.
Your next question comes from the line of Simon Flannery from Morgan Stanley. Your line is now open.
Great. Thank you very much L. T. You were talking about the roaming and the impact of the of the sprint.
Merger I think they've moved to 80 per cent of the traffic onto the T. Mobile network is is it fair to think that we're kind of trough ing here and that you can grow that business as we go for it and perhaps the opportunity with dish as well and any color on where roaming goes from here would be great and then on the L. A partnerships.
Oh and the other.
And wireless investments any color on the outlook for distributions over the next couple of years does have you got on communications on what to expect given the C band auctions and that the spending there.
Yeah, Thanks, Simon and good morning, so on the roaming and with the sprint merger of you've seen our inbound roaming revenues decline of.
Large part of that is is that reason with T mobile and migrating legacy sprint traffic over to their network.
No that sprint represents right now of about 15% of our roaming inbound roaming revenue. So theres not a lot more of that to lose but that will be going away over time, and we do project decline in roaming revenue.
And for the remainder of 2021 and going forward that said there are opportunities out there and you mentioned, 1 that's front and center and dish and that's something that will allow will be exploring for sure, but that's the trajectory of roaming revenues move.
Moving on to the L a partnership and distributions.
Our distribution and the first half of all of the Euro is about 70% of of what it was last year and that was primarily due to operational reasons within the partnership.
And our expectation for future distributions and the second half we expect the distribution that is close to what we received in 2020 and.
And and going forward, we have no visibility beyond that I mean, we expect the current.
Trend to continue we have no knowledge of any of unique arrangements with respect to spectrum or other.
Assets that could change that that said.
We're a 5.5% partner in that partnership and we don't control that distribution. So if horizon decides to.
Change the the.
The path of that distribution and then then the then we'll have to live with that but right now no no significant changes that we are aware of.
Okay. Thank you and and on the roaming what what are we seeing on the volume side of interest with Covid and reopening and so forth or is that sort of back to normal levels or is there still some benefit as well.
People business travel returns of whatever well.
Yeah.
Yes, it's true.
2 sites for that inbound roaming our volumes are going down and that's associated with what I, just talked about and some other carriers, reducing their volumes such as <unk> traffic and other traffic on the outbound side, it's a totally different story our usage on the outbound side increased a 100% Q2 over Q2.
Year over year, and and by the way while that occurred our expense went down 7% because we've negotiated very favorable rates on those outbound roaming agreements. So we're managing that aspect of it quite well and they're going in different directions.
Right Alright, thank you.
Your next question comes from the line of Phil Cusick from Jpmorgan. Your line is now open.
Hi, This is EMEA Ross on for Phil Cusick. Thank you for your time.
Just 1 from me is U S and registered for any upcoming auction.
So we filed an application for the upcoming D O D auction.
That's the answer.
Thank you.
The next question comes from the line of Siroky have ski from Gamco investors.
Your line of smelter.
Good morning, guys.
My name is the Guy.
Thanks for taking of the questions. So my first question is for L. T. So.
L. T. You you mentioned in your prepared remarks, a business and government segment, a little bit, but could you kind of expand on the the opportunities that you see in that market. The other thing goosing penetration there as 1 of the field priority is what is the size of the business and government markets and the other service territories, what does your <unk>.
And now and the where would you like to be and a few years I guess, what they'll do consider of success kind of on the 3 year horizon.
Sure Sir day, so I.
I mean from a business and government perspective, right. We don't we don't disclose the segment independently, but back of the envelope you can think of our share is being approximately half of our postpaid consumer of share.
And so there's a lot of opportunity.
The the we're getting a bit more granular on where that opportunity lies I would point and a few places.
The first is just simple blocking and tackling on the small business customers the walk into our stores.
We're making growing small business a priority for our stores and we're starting to see some benefits there.
We're also seeing that in terms of in terms of adding products to the mix for our stores. So for example, the G O tab partnership that for.
<unk> fleet management services for.
<unk> management is the bread and butter of small business sales from going through retail.
As you have folks that run lawn services, you have folks that have 7 trucks 8 trucks and that's difficult to cover with a large enterprise sales force. It is perfect for our stores and we started to put some of those measures in place.
More broadly however, we're putting a concerted effort behind the building distribution and the business and government space.
And so I mentioned, the Kemkers joined our team last year. She has been expanding her per channel expanding our distribution.
And we're starting to see some benefits there and so we're starting to see some larger Iot deals for <unk>.
And on some larger private networking deals.
So this is the situation where I think we have a fantastic asset which is an industry leading network in.
And the markets and which we operate and we haven't put strong business distribution behind that and the past and we expect to now and so.
It doesn't require a development of a lot of brand new capabilities, we don't have to spend a ton of capital.
In order to support this channel this is about building distribution and getting share.
Similar at the very least to where our postpaid consumer share it and that creates meaningful growth. So hopefully that addresses what youre looking for.
Great. Thank you.
Maybe 1 question on the competitive front, so T mobile other.
This has been highlighting suburban and rural markets as the growth opportunity for examples of trying to double the market share over the next for the 5 years, what have you guys seen from T mobile on the competitive front and the second quarter and your markets and how do you plan to mitigate sounds and things that you may see from or maybe you already are seeing from.
And that's where the sales distribution expansion and and generals or a market the marketing question.
Yeah.
And as Sergey so all the.
And I'll address your T. Mo question I think there's 2 fundamental things that are happening on the competitive front.
The first is as we've seen.
Much more aggressive upgrade offers.
Across the industry.
T. AT&T started this up about I now almost 12 months ago.
And Verizon has been on and off and matching them. I think question..1 is how do we think about those upgrade offers and.
Is that a is that of logical thing for the industry to be doing.
And the way I'm thinking about this right now is that in the near term. So for a short period of time, it's actually relatively logical for the industry to be as aggressive as aggressive as we've been.
If you think about customers that are out of contract.
Those are up about 15% since for the industry since the since Covid.
Same thing with average holding period of devices up 15% and.
And so you've got a lot of people that are out of contract and they've had their devices for much longer.
If I couple that with the fact that 5 G availability.
The currency of choice right now for people and making switching decisions.
Pretty logical for carriers to be working hard to get 5 devices and the hands of consumers, giving them a better network experience bring churn down.
And so so I'm not surprised that we're seeing more aggressive offers and you're seeing them from us too right. We have taken this regional approach, but in certain regions. We have some of the most aggressive offers and the marketplace.
On the.
The benefit that we're seeing there is <unk> and ARPA of expansion and I think thats been underestimated in the way that people are thinking about the financial the financial impact for the industry.
So just to put a little bit of numbers behind it.
We have our and for our higher rate price plans.
We generally have been about and the mid 20 percentile of the customers that select those higher rate price plans.
That's up to the mid Forty's.
And so there's <unk> expansion and net ARPA of expansion as the gift that keeps on giving the.
And it creates attractive long term economics.
Once we get through what I believe is relatively near term <unk>.
Promotional aggressiveness and we.
Talked about this on our guidance.
We have we've maintained the guidance, even though there's been a really aggressive promotional environment.
And the second thing as you mentioned is T Mo right and so T. Mo has made a lot of noise and.
About about their expansion into rural areas.
Oh, we have not seen it.
And we track market share market share has remained generally constant for T. Mobile we track the components of market share win share and a loss share I havent seen those move either.
Surrogate of the way I think about this is what we do is hard.
Putting in networks.
On monetizing networks the.
The difficult.
On different people have said, Oh, well, we can do that too.
I think of Google Fi as a good example.
And it's much harder than people think.
And it's even harder and rural America than it is and urban.
And I'm not taking T mobile lightly they're on.
And well run company there for medical competitor.
But so far what we're seeing is is more of marketing than it actually is network deployment and customer action.
Got it great.
And maybe a couple of questions for the kit.
The <unk>.
So on the fiber build from I guess looking.
And at the most.
The most mature markets as well as some of the newer builds that youre doing and Idaho and Washington, what are some of the lessons learned whether it sounds of the learnings that might be impacting how you guys sort of approaching future builds and how youre tweaking. Some of your plans I guess, what's worked for you guys, so far and what didn't work.
And the you adjusted.
Thank you Sergey and good morning.
Thank you for the question.
You know that we are seeing on our new fiber market really continues to meet or exceed our expectation.
These are the ones, where we have the construction completed and we are watching our result, and this is what's really increasing our sense of urgency to accelerate our programs right now.
Let me just share with you some of the successes we're seeing.
With our new out of territory markets.
For example of nearly half of our broadband connection growth in the quarter.
Due to our out of territory markets reporting twice the number of connections as compared to last year.
And our broadband penetration rate, although vary across our markets due to the different you know timing and and the market launching they're averaging about 32% as of the end of the second quarter and this is still early for many of our completed market.
I also wanted to note that voice and video connections are also growing across our expansion market.
Video attachment rate at 41%.
And contribution margin and says I'm watching the financials on these market. Although early are north of 50% and the markets that have completed construction more than 12 months ago. So that's some of the successes we're having in terms of the construction period, we are having some delay.
And there are some lessons learned there.
And the pace of construction and the challenges we encounter are very different across each of our market. Some kind of its permitting challenges, sometimes we're hitting rock as we're doing largely theory, bill, but we're getting smarter and and so for the cities that want that.
These are huge significant project.
And that is really about the future economic prosperity of these community So city leaders.
That are keeping the end game and focus on.
And are working with us more and more.
<unk> success during the construction period I think that's a real key learning for both for both Scott.
On tractors and and our city leaders as we continue to work for me.
Yes.
Great and my last question is are about the video so you.
And the 41 of the 41% the detriment of trade I guess, he thought of as an important element of your strategy, but some of your peers the emphasize T the offerings and basically.
Direct consumers to streaming and virtual and maybe the options like Youtube TV and so what are the reasons why.
And you'll be dose debt as it makes sense for you and your markets what is different and new markets that may be of some of your peers are not seen.
Yeah, well the video attachment rate.
Of 40% on average of cross our wireline markets.
And our customer tally of how.
The important video is on.
For the overall service offering for.
And for 40%.
The video attachment to every single broadband.
And next Gen.
That's a really strong strong rate and our video.
Product is profitable and it's the state of the art platform.
Bundled with broadband really offers a superior.
On a superior experience for our customers and as you know and our market.
We have market debt.
Really half of high.
The percentage of single family homes and single family homes.
By these entertainment packages and they buy up the stack higher speeds and higher.
On the video video programming and.
What's really important from an economic perspective is that as you look as you know bundling is an important part of our strategy and so as I look at the economics of the customer lifetime value.
All of our customer who takes not only data, but also take video with data. So they have a bundled product the valley.
The increases significantly as we watch and.
As we see lower churn on these products, so very important to our overall strategy.
Great makes sense. Thank you.
Speakers I am seeing no further questions in the queue. Please.
Please continue great, but we'd like to thank everybody for joining us today and look forward to our future conversations.
And then weekend.
This concludes today's conference call. Thank you for participating you may now disconnect.
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