Q1 2022 Telephone and Data Systems Inc and United States Cellular Corp Earnings Call
Okay.
Good morning, My name is David and I'll be your conference operator today at this time I'd like to welcome everyone to the Tds and U S. Cellular first quarter earnings results Conference call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session if you'd like to ask you.
Question. During this time simply press the Star can you followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star one once again, thank you, calling Thompson Vice President of corporate Relations you May begin your conference.
Good morning, and thank you for joining us we want to make you all aware of the presentation. We have prepared to accompany our comments. This morning, which you can find on the Investor Relations section of the Tds and U S cellular websites.
With me today and offering prepared comments are from.
GDS Pizza radar executive Vice President and Chief Financial Officer, Vicki Silvercrest incoming executive Vice President and Chief Financial Officer from U S. Cellular LP terrible precedent and she gets Chief Executive Officer, Doug Chambers, Executive Vice President and Chief Financial Officer, and Treasurer and from Tds.
Mcconnell, Michelle <unk> senior Vice President of Finance and Chief Financial Officer.
This call is being simultaneously webcast on the Tds and U S cellular investor relations websites.
Please see the websites for slides referred to on this call, including non-GAAP reconciliations.
We provide guidance for both adjusted operating income before depreciation and amortization or OIBDA and adjusted earnings before interest taxes, depreciation and amortization or EBITDA to highlight the contributions of U S Cellular's wireless partnerships.
We filed the majority of our documents with the SEC after market close yesterday, but due to issues with Edgar Theyre not yet appearing on the SEC's website.
Although the Tds 10-Q or on our website. This morning.
As shown on slide two the information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties. Please.
Please review the Safe Harbor paragraphs in our press releases and the extended version in our SEC filings.
In terms of our upcoming IR schedule on slide three on May 20, <unk>, we are attaching Jpmorgan technology media and Communications conference in Boston.
Second we are doing a non deal roadshow in New York City.
And as always our open door policy can now be an open door phone or video policy. So please reach out if you're interested in speaking with us.
Turning to slide four we continued making progress on our environmental social and governance or ESG program.
And as you can see on the slide we have had a number of initiatives that demonstrate our commitment.
I'll now turn the call over to Pizza radar Pete.
Good morning, I'm confident that when I retire at the end of this month Tds will be in good hands with Ricky Villa Kroger's CFO , but he has over 30 years of experience with the Tds enterprise.
<unk> spent the last six months working closely together to ensure a smooth transition and her 10 years as CFO of Tds Telecom. She was a key leader in business driver when she deserves much of the credit to the creation and execution of the fiber transformation that is underway as well as the general financial success of the company.
We are very lucky to have someone with her level of ability she's a very talented leader and will do an outstanding job as CFO of Tds and with that I will turn the call over to Vicki <unk>.
Thank you Pete and good morning, everyone.
As I stepped into this role.
I am fortunate to be the CFO at a company with such a strong financial foundation and exceptional talent.
<unk> forward, we will continue to ensure that we maintain this position so that each of our businesses can take advantage of their growth opportunities to hand to enhance their competitive positions and ultimately improve long term returns.
We expect to also continue to return value to shareholders, primarily through cash dividends, which has increased every year for the past 48 years.
In addition, we repurchased a modest amount of stock this quarter and May continue to do so opportunistically and again at a modest level depending on market conditions.
Both of our businesses are focused on executing on our strategic priorities and meeting the financial expectations that we guided to at the beginning of the year.
U S. Cellular is continuing to make improvements in its high performing network and Tds Telecom is seeing good success in its fiber expansion program.
Inflation and supply chain are two areas. We are watching closely we've developed strategies to mitigate any impact and overall I believe the organization is managing well.
At the same time, we are working to ensure that will be a key player in the infrastructure investment and jobs Act R. J a program at both businesses.
We also strongly advocate the extension of the FCC's ATM program, which we currently participate in today.
Each business unit will touch on our specific areas of focus on these topics. This morning.
And now I'll turn the call over to LTE.
Thanks, Vicki and good morning, everybody as you can see on slide seven our mission remains consistent to keep customers connected to people in places that matter most to them.
On that slide you can see some of the strategic priorities that support our mission.
Let me turn to slide eight.
This slide shows you the strategies that we've developed to drive revenue growth increase return on capital a little bit Todd Let me start with postpaid.
I'm not satisfied with our subscriber results in the first quarter.
We continually try to optimize financial outcomes with subscribers.
Over the past four months.
Last two years really has been extremely competitive and although we have a regionally adjusted aggressive offers in the marketplace, particularly from an acquisition standpoint.
We've also tried to be disciplined from a financial perspective, you see that our strong adjusted operating income performance for the quarter.
I'm sure we'll get to the Q&A section you, maybe some questions around AT&T as recent price moves.
So I certainly don't have insight into all the drivers of the decision we operate in a highly capital intensive industry and although the industry is somewhat insulated from inflationary effects.
Our industry generally spares well in challenging economic conditions we're.
We're all experiencing increasing labor costs and increasing costs across our supply chain.
That being said you view this as an opportunity.
We're committed to caring for our customers during tough economic times will be committing to our customers that we will not raise prices on their existing rate plans.
At the end of 2023.
We're highly focused on improving churn.
Commitment is one component just one component of our plan to do this.
So let me go back to the theme of balance we.
We are challenging subscriber results, we better drive positive <unk> results and we certainly did.
Doug will touch on in a moment of our postpaid ARPA was up 4% year over year and you can see the impact on our service reps.
Very encouraged by our ability to grow postpaid ARPA over time growing this metric by 2% reached in the last three years.
You see strong growth in the first quarter of 2022.
And as ARPA growth is despite the headwinds of a highly promotional environment that includes providing monthly credits associated with Mike's discounts, which had a negative impact on posting losses.
We switched to prepay the topline prepaid results don't look tremendous but I'm actually quite pleased with the performance of that business from a relative basis.
Our prepaid results were impacted by a lower switching pool in the first quarter across the entire industry, but our share of gross adds and that switching pool continues to perform quite well.
We continue to see positive momentum in the growth investment areas of our business. We had another strong quarter of high speed Internet results gross ads up 27% year over year most of those on our low band product.
While we continue to expand our <unk> millimeter wave footprint.
We now have <unk> Mellon.
<unk> fixed wireless access service available in 10 cities would.
Would you plan to offer this service and dozens more cities throughout the year.
Our tower business produced double digit revenue growth momentum.
Momentum there continues to build and we're seeing continued positive growth in the <unk> space.
Signed our first private networking deal recently, and we continue to see really positive deal momentum in the Iot space as well.
We're also beginning to see positive results from our investments in digital digital capabilities to provide better lifecycle management targeting messaging.
For example, we've seen significantly higher mobile app traffic trend.
Transactions.
Stance really improves the customer's customer experience excuse me as measured by <unk> scores.
This has resulted in a 45% year over year increase in App sessions at the end of the quarter.
This improves our customer experience deepens our engagement. It also helps us manage costs over the long term.
Turning to the network, we continue our network modernization program in multiyear flagship.
The majority of our traffic is carried by sites that have fiber deployed.
Equally important we're getting <unk> devices in our customer teams, so far a 34% of our subscribers have <unk> capable devices.
Thank you you mentioned the <unk>.
Need to meet with key stakeholders to maximize our opportunity for wireless under that program.
With some context around this in terms of dollars the Iga will allocate nearly $43 billion of broadband funding to individual states.
Specific allocations are still being worked out and we believe as much as $8 billion could flow to areas, where we operate our network.
We know that fixed wireless is a compelling solution for broadband to the home and the business worth uneconomical to put fiber.
You've seen Steve nearly one gig over seven kilometers and our technical trials.
<unk> is marketed 300, Max that's a tremendous improvement in speed and capacity for Rural America.
Additionally, the investments, we're making wireless broadband provides the additional benefit of improving our wireless mobile network coverage.
Clearly any infrastructure investments of towers to also help us drive greater levels of tower revenue.
So to summarize I'm pleased with the financial outcomes in the first quarter, we continue to see positive momentum in the growth investment areas of the business.
Although subscriber results were challenged particularly in postpaid you continue to try to strike the right balance between financial outcomes subscriber outcomes.
I'll now turn the call over to Doug Who's going to take the financial results.
Thanks, Ralph Good morning, let's start with a review of customer results on slide nine postpaid handset gross additions decreased by 13000, largely due to continued regression progression and the competitive environment.
Postpaid handset net additions were down 32, driven by the lower gross additions and an increase in churn, which I will discuss in a moment.
You saw a connected device gross additions declined by 4000, driven by lower tablet admissions due in part to global supply constraints. This.
This was partially offset by an increase in fixed wireless conditions.
Overall, we continued to see solid growth in fixed wireless as unlimited plans are now available in the majority of our network.
Let's turn to the postpaid churn rate shown on slide 10.
Postpaid handset churn increased from the prior year driven by higher voluntary churn as a result of increased switching activity and continue to aggressive industry wide competition.
Involuntary churn also increased.
<unk> changed consumer payment behavior, as we experienced very low in voluntary churn rates in 2021 due to various impacts of the pandemic.
Total postpaid churn by the handsets and connected devices increased due to higher handset churn and certain business and government customers disconnecting expected devices that were activated for various reasons associated with the pandemic over the past two years.
Moving to slide 11, prepaid gross additions declined seven <unk>.
Largely driven by a lower prepaid gross alcohol in 2022.
Net admissions decreased by 18000, driven by lower gross additions and higher churn, which was also lower last year due to the impacts of the pandemic.
Now, let's turn to the financial results starting on slide 12.
Total operating revenues for the first quarter declined 1% from the prior year.
Retail service revenues improved by 3% due primarily to a higher average revenue per user, which I will discuss in a moment.
This autoimmune revenue declined 27% due to lower unit volume and lower rates.
One of the factors contributing to stronger volume decrease since the merger of sprint and T mobile and the continuing migration of sprint roaming traffic to T Mobile's network.
Other service revenues were up 8% due to both higher tower rental revenues and miscellaneous other service revenues.
Lee.
<unk> sales revenues decreased by 12% due to a decrease in units sold as well as a decrease in average revenue per unit, which was driven by an increase in the value of promotional offers as a result from the competitive environment.
Turning to slide 13.
The average revenue per user and average revenue per account were up 4%.
The increases were driven by favorable plastic pallet operating mix increased cost recovery surcharges.
And an increase in device protection revenues.
These were partially offset by an increase in promotional costs.
Permian, 33% of our handset customers are our two highest tiers of unlimited plans.
Focused on continuing to grow this number to further prove our group and to provide our customers with the enhanced value of these plans.
As you can see on slide 14, we continue to see steady growth in tower rental revenues, which increased by 10% from the prior year driven driven by an increase in our tower tenancy right.
Our overall financial results for the quarter are shown on slide 15.
In this discussion I will refer to adjusted operating income before depreciation and amortization and accretion and gains and losses as adjusted operating income.
As I commented earlier total operating revenues declined 1%, but total cash expenses were essentially flat.
Cost of equipment sold decreased 6% driven by a decrease in units sold.
Selling general and administrative expenses increased 6% driven by a decrease in bad debt expense due to an increase in write offs related to involuntary reductions, which have increased from very low levels experienced throughout the pandemic to historical pre pandemic levels.
Total system operations expense was essentially flat.
Excluding loss of equivalent which reflects the impact of the highly promotional environment and bad debt expense, which is returning to pre pandemic levels. Other cash expenses were essentially flat year over year.
And as a result of our operating expense discipline and the execution of our multiyear cost optimization program, which continues to yield strong results.
Adjusted operating income declined 6% and adjusted EBITDA, which incorporates the earnings from our equity method investments along with interest and dividend income decreased 4%.
Capital expenditures have increased 10%, mainly driven by the timing of expenditures in 2022 relative to the prior year.
Turning to slide 16, I will cover our guidance for the full year <unk> to our guidance range for total service revenues adjusted operating income and adjusted EBITDA remain unchanged. This reflects our estimates for both single digit growth in retail service revenue.
Continued decline in high margin roaming revenue and the.
The expectation of a continued highly competitive and promotional focused environment.
For capital expenditures, we are also maintaining our guidance range.
Investments in <unk> and network modernization and initial preparation for our mid band spectrum deployments remain on track.
I will now turn the call over to be sharper equity shelf.
Thanks, Doug and good morning, everyone.
We are pleased with our results at Tds Telecom for the first quarter, we are tracking to our financial guidance expectations and had strong growth in our fiber program.
As planned we added 22000 marketable fiber service addresses to our footprint and continue to execute on our fiber strategy.
Since February we announced our expansion into four new markets in Montana in several communities in Wisconsin. We also completed fiber construction in our central Wisconsin cluster and are pleased with our results to date.
We remain committed to the same strategic pillars. We are focused on for several years. Our primary strategic objective is to provide growth and improve returns by investing in our flagship product high speed broadband.
We are directing our investments to expand our fiber footprint in new and existing markets and to enhance our product offerings and these investments are driving revenue growth.
At the FCC's upcoming meeting in May and extension of the ATM program will be considered which we aggressively advocated for and fully support.
We anticipate an extension program would provide additional years of revenue support in exchange for deploying higher speed higher broadband speeds.
Extending the current central ATM program, along with the Iga broadband funding would provide even more opportunities for Tds telecom to help bridge the digital divide in our most rural areas.
Turning to slide 19, we highlight the achievements we've made for this quarter as mentioned, we announced four new fiber markets in Montana Grateful Missoula Helena, We also announced two new markets in Wisconsin, Janesville, and Brookfield, and we expanded our western Wisconsin.
Constant cluster by two additional communities.
Beginning in 2022, we are now measuring fiber service addresses in our cable markets as we are deploying fiber and opportunistic areas such as Greenfield development.
We deployed 22000 marketable fiber service addresses in the quarter and are working hard to reach our target of 160000 for the year.
Seasonality will impact the quarterly cadence of fiber service address delivery starting slowly in the first quarter and steadily building throughout the year.
33% of our total footprint is now served by fiber and this metric as I mentioned now include fiber in our cable markets.
As a reminder, as reported in February we expect to serve approximately 60% of our total footprint with fiber by 2026.
As we look to deliver our service center schools for the rest of the year, we continue to manage a variety of industry wide headwinds, including inflation supply chain and contractor performance challenges.
We are working to mitigate these headwinds and are pleased to have a robust pipeline of markets to help us pivot if necessary.
In line with our growth objectives service addresses grew 7% year over year in the first quarter. We completed the network upgrade to DOCSIS, three one and our continuum market and increased our availability of one gig speeds to 62% of our total service addresses up from 55% a year.
Year ago.
We also continue to see positive trends in our broadband penetration rates for markets that have been fully launched for more than 12 months.
And we still anticipate 40% to 50% consumer penetration in a steady state.
On slide 20, you can see the broadband connection growth across all markets.
Total broadband residential connections grew 6% in the quarter as we continue to fortify our networks of fiber and expand into new markets.
We are on track on our network construction under the ATM program also helping to drive growth in our incumbent market.
Shown on the graph on the right. We continue to see demand for greater broadband speeds with 67% of our customers, taking 100, megabits per second or greater up from 62% a year ago.
Our one gig product along with our <unk> product in certain markets are important tools that will allow us to defend and win new customers.
In areas, where we offer one gig service, we are seeing 21% of our new customers, taking the superior product compared with 17% a year ago.
Our focus on fast reliable service has generated a 10% increase in total residential broadband revenue.
On slide 21, total operating revenues increased 1% year over year, largely driven by growth in residential revenues, which increased 4% across all markets.
As shown in the chart on the left expansion market revenues have increased year over year. Following the timing of service address delivery.
<unk> wireline incumbent market revenue was flat year over year due to growth in broadband connections offset by a decline in video and voice connections.
Cable residential revenues grew 3% due to an increase in broadband connections.
Commercial revenues decreased 6% in the quarter, primarily driven by lower CLEC connections and wholesale revenues decreased 2%.
Overall product mix changes drove a 2% increase in average residential revenue per connection.
Let me sum up the combined financial results for the quarter as shown on slide 22.
As we just mentioned revenue increased 1% from the prior year as growth from our fiber expansion and increases in broadband subscribers exceeded the declines we experienced in our legacy business.
Cash expenses were flat year over year with increases to support current and future growth offset by savings in our platform cost.
As a result, adjusted EBITDA improved 3%.
Capital expenditures increased 50% from last year as we continue to increase our investment in fiber deployments and focus on broadband growth.
Moving to slide 23, we have presented guidance, which is unchanged from what we shared in February .
We continue to progress on our fiber deployments in new markets, which as a reminder, will put pressure on adjusted EBITDA during the year as reflected in our guidance.
I want to thank all our team members for their continued dedication to our ambitious growth agenda. We have had a successful start to the year and look forward to updating you on our second quarter.
Now I will turn the call back over to Colleen.
Okay, David we're now ready for questions.
Yeah.
Thank you at this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster. We will take our first question from Simon Flannery Flannery with Morgan Stanley . Your line is open.
Great. Thank you very much good morning.
I'll tell you just coming back to the wire.
The wireless competitive environment.
<unk> was up quite a bit as you noted on the competition is this.
T Mobile's rural build is this cable getting more aggressive what are you seeing in the marketplace and then on the involuntary.
Verizon had talked about a softening in store traffic or what are you seeing on the macro or was this just that last year was very very low and that this is more normal or are you sensing some slowdown in the consumer behavior that some others are talking about.
Hey, good morning Simon.
Thank you.
You kind of quickly triangulated towards the pressure from the subscriber results I'll answer the churn question to put a time EBITDA.
Context around.
The gross add side of the equation actually is still relatively strong.
We've seen the switcher pool, and our footprint is down almost 7% year over year I expect a lot of that.
It's because people are spending their tax refunds on things other than mobile devices and so.
When I adjust for that.
Our new account gross adds are down 2% from last year overall share gross ads is actually up from 19% to <unk> and so the gross add side of the equation.
While we clearly need to continue to focus on it and need to drive good performance. There is actually its actually quite good.
The challenges on our lines.
And we've got some plans in place to address that and then I'm sure as you correctly identified.
Look at the competitive environment that you asked about what we're seeing in the footprint is not particularly different from what you see nationally.
C T mobile.
Continue to grow but not not not in any way incrementally in our footprint and what you see nationally.
Same with table, except we're actually a little bit more insulated from cable then overall national trends cable is really present in about 50% of our footprint.
And so although we do continue to see them present in our marketplace.
We think we're a little bit more insulated given the rural nature of our footprint.
So what else are we seeing it's really been a stay very aggressive upgrade environment, particularly from AT&T Verizon is to match that and so we really have to focus on two things one is analyzed.
One is we've got to continue to focus on churn with our customers.
And Youll notice I talked about.
The announcement, we're going to be putting out there about not raising prices on any of our customers postpaid and prepaid.
Until until at least the end of 2023, and we think it's the right thing to do I think customers are looking for certainty.
And given the given the position of telecom and the overall.
Economic conditions are telecom during the recession, we enter it late and we exit early so I think we're relatively insulated.
That being said, we do see really high levels of inflation, we do have the flexibility to raise prices. If we each won new customers or we can always require new rate plans. If you want to qualify for a device promotions. So we still have flexibility to adjust if we need to but we think it's the right thing for customers and we think it'll be very attractive.
Bringing downturn.
Also had a couple of other plans are we going to be rolling out later in the quarter to address the churn problem. So I'm optimistic in our ability to address churn, while we continue to improve process, Doug Let me turn it to you to answer both questions. Yeah sure Simon the reason on the adult side is what you've cited during the heart of the pandemic in 2021.
We experienced similar to mobile watermark for bad debt expense of <unk> 6 million for the entire year consumer savings rates were high.
As government stimulus tours obtain their belt that manifest itself, a really favorable bad debt expense what was seen in the first quarter as bad debt expense really return to pre pandemic levels. We plan for this is baked in our guidance nothing unusual when you start experiencing that same.
Sort of benefit that we did during the pandemic.
Okay, great in store traffic.
The consumer slowing down or that the industry slowing down after a strong year.
Northerners store traffic was down slightly year over year, but nothing nothing concerning.
Alright, alright, thanks, so much.
Thank you excellent go to Sergey <unk> with Gamco investors. Your line is now open.
Good morning.
Thank you guys for taking the questions.
My first question is on.
Just kind of your go to market strategy LT. So obviously you have the differentiate that.
The regional approach and Youre trying different things.
Different markets you have various clusters that are non contiguous so you can.
<unk>.
Maybe if you could reflect since we implemented this approach what have been the results. So far what has worked in as upfront what could be improved.
Could you maybe this approach more effective to maximize potential.
Gross add share gain opportunity going forward.
Yeah.
Hey, good morning, Sir.
The regional approach you've talked to you I am very pleased.
And let me put it in context it is.
Is not easy to pivot to create not only creating regions and putting the processes and the structures in place to use those regions as test beds.
But then executing on that and over the last 12 months, we've executed over 40 discrete pricing and promotional and marketing mix trials across our region.
One of the.
I hate doing this on calls like this but I can't give details on the specific plan, we're going to be rolling out later in the quarter.
We're going to be doing.
A relatively substantial move that was educated by.
<unk>.
Regional trial.
Another example, I'll give is the ARPA increase.
So you've seen very attractive our performance I would contrast that with some of our competitors and we've been able to do that because of lessons learned from individual regional trials.
We haven't had to require.
Specific.
Plan up sell to.
Yet the <unk> growth that we've seen we've done it with sales we've done it with strong execution.
And we've done that because we are able to trial different approaches.
You mentioned different go to market.
In our individual regions and so very pleased with what we've seen so far and you can expect to see it continue.
At times, you will rollout national programs like the one I just talked about around the around the rate plan guarantee.
But at the same time, we continue to test whether it's individual device promotions.
We vary our prepaid.
Right plans fairly substantively region to region to make sure we strike the right approach.
Our distribution approach fairly significantly so we're really trying to test and learn and has helped us optimize and will continue to help us optimize so I'm very pleased with kind of proceed.
Great.
My next question is on your fixed wireless strategy you're out in the market.
Youre going to be.
With fixed wireless and millimeter wave and thousands more markets throughout the year.
At the high level could you talk a little bit about your approach to fixed wireless.
0.2, what kind of speeds do you expect to comfortably market and your fixed wireless footprint and how quickly do you expect to scale. This.
Wireless offering maybe what kind of markets you're prioritizing your fixed wireless bill.
Yeah.
So let me start with low band.
Because we've actually driven subs.
Subsequent to the increases in gross adds year over year, 24% increase in gross adds year over year and that's also gone down to the net adds.
And we've done most of that with our logo product.
That low band product performed very well in rural areas.
What are your best competition, DSL or satellite, but what we see is customers like the product.
Like the experience.
Looking at it.
And we can learn a lot of operational lessons from that low band build out we're now north of 60000 customers on that product.
And we can apply that to first our millimeter wave build out and then as we bring our mid band spectrum online C band $3 45, We also planning on square also plan on using that spectrum to support fixed wireless.
And so we mentioned we've rolled it out now to be bolt on millimeter wave product out to 10 cities.
We're marketing speeds of 300, Megabits, we believe thats relatively conservative in terms of the actual experience we can provide.
Our technical trials are almost at gig over seven kilometers.
Of course Thats.
Sunny day.
No rain no wins.
So we try to be a bit more conservative what we actually put out there in the market.
But we are offering a very high quality product at 300 banks and we will continue to offer that product as we rollout midnight.
So you can sort of think about our go to market strategy for mid band and millimeter wave.
In two categories.
The first category is areas, where it is economically attractive on a standalone basis, and I'll explain what I mean by that.
We have there are plenty of places in the U S in our network footprint.
Where we can put millimeter wave on the tower.
Can put C band four five as it becomes available.
And we can serve homes and businesses in that area.
We can provide a really good product.
The interesting opportunity that you mentioned the <unk>.
Right now the cost us back of the envelope between 5% and $600000.
Tower in Rural America wide range by the way around that cost estimate, but let's call it 500 to $600000.
We need a density of a couple of hundred customers, who were in a five kilometer radius of that tower in order to make money on the fixed wireless product.
Alone.
If with the Iga, we can take that cost from 500 to 200.
103.
Right.
Now all of a sudden we can profitably rollout that product much lower density areas.
Which is what states want us to do when you look at the <unk>, it's focused on Unserved and underserved areas those areas are unserved and underserved for a reason.
It's very costly to support and Theres very low customer densities.
Great areas for fiber they are a great areas for fixed wireless and so we're very optimistic on our ability to participate in those plans on a state by state level.
And the beautiful thing about it and this is what is very compelling to the governors in the broadband commissions that I've spoken with is that when we make that investment.
And assuming the dose those towers are subsidizing part by IAG eight states.
The combination of those dollars helps fund fixed wireless to homes and businesses.
It also dramatically improves the <unk> mobile experience in that area that will help our mobile business.
And because we are the fifth largest tower company in the country. We can then also market those towers to other carriers and that helps us for co location revenue.
It's really a three part benefit if we're able to get some of those funds. That's why we're spending as much time on it as possible. So I'm very optimistic about that business.
Sure.
Great and.
My last question is.
Doug on.
The guidance and cost savings.
<unk> two so I think the midpoint of your EBITDA guidance implies about 200 basis points towards the less margin pressure compared to actual 2021 results.
Yes. My question is what are some of the things that youre doing to take costs out of the business right now to mitigate those pressures and maybe over a longer maybe two to three year horizon what ourselves.
Cost cutting and efficiency initiatives that you are.
Pursuing how meaningful they could be.
Over time, what are the larger buckets so those.
Cost efficiency opportunities.
We have a cost optimization program that we are highly focused on we've been executing as its going on.
<unk> Europe right now in 2022, and it's really across the business.
On the engineering side focused on everything from backhaul of cell site rent and maintenance agreements.
The IP.
The mix of labor pre contract term and doing things more efficiently as well really even.
<unk> provider, we changed our regional needs across the business the refining cost and revenue opportunities and you can see the results of that point when you look at our margins in 2017 as a percentage of service revenues.
<unk> 22.
Steadily increased to an excess of 28% in 2020 and now in 2021, a little step backwards because of all of the dollars being invested promo, but we're still making progress on this cost.
And in similar way in 2022.
The promo expense, losing the high margin growing revenue, which were mitigating partially with roaming expense savings.
And the bad debt expense increase that I talked about earlier we're.
We're losing a little bit of margin because those things are all happening very quickly in the background.
Our continuing pressure on the cost again brands six year, and we're not stopping and last year was the first should we started doing zero based budgeting as part of a process as well so it's really across the business.
Been a great success.
Like I said, we're keeping the.
Pressure on.
Got it thank you guys.
Next we'll go to Michael Rollins with Citigroup. Your line is now open.
Thanks, and good morning.
Curious.
Were strictly.
Strategically.
Youre thinking about the U S cellular business in terms of.
Opportunities for partnerships or alliances with other carriers in the category to either bridge.
Phil or expand focus Tam.
Any updates on that front would be great. Please.
Hi, Mike.
The position on this hasn't changed which is an open for business on that front.
Belief is that.
And I'll harken back to the conversation, we just had around fixed wireless.
My belief is that it makes no sense whatsoever to have multiple duplicative <unk> networks enrolling.
345.
We're heading towards.
Given the capital intensity Thats involved I don't think that makes a lot of sense and I think theres plenty of opportunities to work together to bring the capital intensity down to make the investments more than worthwhile and to deliver a high quality experience in rural America. So I remain very open for that we've had multiple conversations with.
Continue to have multiple conversations.
These things do not move quickly.
So I don't want to I don't want to even 96 imminent, but I think that that viewpoint is shared across the industry around the capital intensity thats required.
Some of that is probably behind Dtp's most recent pricing.
So I think there's opportunity and we've been quite clear with that with other folks.
Just.
Just maybe going a level deeper on that for a moment.
When you think of the cost versus performance of rural builds for five G.
If you work with another carrier and let's say doubled the spectrum that you have.
Access to.
With that.
Create a lot more performance, where you can make the case that you do it cheaper and better.
<unk> U S cellular because you've built a large spectrum positioning over time.
Spectrum, not the gating factor to drive performance relative to cost for those users.
So I think you have to divide this up into now and future.
Right now spectrum is not the gating factor.
Coverage remains.
The largest concern and that's why I'm, so bullish about <unk> and the ability to put more towers enroll America at a lower cost.
Possible partnerships give us the ability to deliver that service to deliver that coverage and do it at an even lower cost than to do an even lower level of capital intensity or potentially share opex.
It doesn't make sense for me to climb a tower AT&T Verizon T mobile dish all of US finding the same tower, putting the same equipment in place spending the same capital dollars in the same opex dollars.
Now, let's fast forward.
<unk>.
And as Dr walled autonomous vehicles.
Those drones.
Those use cases will place substantive load on speed.
Speed requirements for the network in the long run finding creative ways to aggregate spectrum I'll go a level deeper whether it's on <unk>, there's a whole there's a whole variety of different ways to tackle this problem.
Think.
We fast forward.
Five years fast forward 10 years, the opportunity to aggregate spectrum in a cost effective way in rural America.
Also be able to provide a differentiated service some near term cost efficiencies long term experience.
Experienced opportunity.
Thank you. Thank you.
Okay.
And there are no further questions at this time I'll now turn the call back over to.
Okay, we will have a question from.
I apologize so I'll turn it back over to Colin Thompson for any additional or closing remarks.
Actually we have a question from Ric Prentiss with Raymond James I apologize.
Okay.
Okay.
Yes, Hi can you hear me okay.
Okay.
Yes.
You can hear me.
Thanks, everybody.
Hi, guys.
Good day and earnings again.
Wanted to ask the question.
Partnerships you guys have.
Previously about looking at how you might partner.
With items, obviously as in the quarter were weak, but any update on partnerships you are working with network sharing came up on the.
This call today are asking because what they considered a network sharing what are you thinking about partnerships and network sharing opportunities.
Hey, Rick I, just we literally just answered that question. So just in the interest of time, if I could maybe we can direct you back to the transcript short answer I think theres opportunity.
You certainly made that clear.
We continue to have discussions nothing imminent, but I think there is a long term opportunity to bring costs down both on the opex and the Capex side.
Some of those partnerships and Thats and Thats indicated in the conversation.
Okay, we'll take another question sorry about that.
Fixed wireless access is that come up.
It did.
Did you talk about.
Gross ads.
Are you reporting I think we said in the press release and the gross adds were up.
He'll be reporting where is it reported are they included in the numbers anywhere yet.
Rick at this time, we're not separately reported.
Wireless is included in our postpaid.
Count on.
And so forth and so that's where it is.
Currently.
Substantially all of our fixed wireless access customers are <unk> customers.
Right and so I think thats in postpaid.
Hey, Paul.
That's correct, yes, India connected devices.
Okay.
The transfer, but as we've talked to you said you're talking about prepaid churn.
So we did not so happy to happy to tackle happy to tackle prepaid churn.
So if I if I just kind of take a step back on the on the prepaid business.
At a high level switching pool down fairly substantively.
And so our share of gross adds around that switching pool.
It is still quite strong so we feel good about how we're positioned in the marketplace.
On the churn side, it's important to understand that this is this is the nuance of the prepaid business is that Q1 churn generally represents Q4 results because the customers don't churn off until.
Until 90 days later, and so you usually will see significantly higher levels of prepaid churn in the first quarter.
That was no different for us.
It's not something that I think is out of line with expectations.
We feel good about the offers that we have we feel good about the customer lifecycle management activity that we have and so I remain quite generally quite quite pleased.
And then as you think about the switching pool down what would you ascribe that to because obviously, it's an industry trend we've seen is.
Is it pre to post migration as consumers.
Better or worse off.
Do you attribute that to and so what would it take to turn that around switching pool or the activity in the area.
I think it's macroeconomics.
If you look at what's going on with inflation and people getting their tax refunds.
We're having to spend their tax refunds on things other than mobile phone service.
And so I don't think it's necessarily anything specific to the.
The attractiveness of the prepaid business, there probably is slightly higher prepaid to postpaid migrations because of the aggressive upgrade offers that are that have been in place in the marketplace. So I think thats, probably driving some of it.
That would be the two key drivers I think prepaid to postpaid migrations because of aggressive upgrades.
And then just its tough out there right now for boats.
Okay.
With me on Tds Telecom.
OIBDA in the quarter was better than we were looking for cost of service is that simply seasonal low given the winter timeframe or was it like a slower ramp on the fiber build just trying to understand what happened in <unk> that are more <unk>.
Racquetball number or should we expect some bigger increases.
Yeah, Hi, Rick Thanks for the question.
Adjusted EBITDA was up 3% this quarter, but a.
A lot of our fiber deployment, our fiber service addresses are going to come later in the year. So some of our costs are going to be heavier.
Heavier further into the year and so our guidance is unchanged, we do expect more adjusted EBITDA pressure coming in the future quarters.
We do just like USD Youll are actively manage our costs and so we are really trying to find opportunities for cost reduction.
We did benefit a little bit from that in the first quarter, but I would say overall for the year you should expect heavier adjusted EBITDA pressure.
Towards the latter half.
Makes sense.
One more back royalty on the switcher pool, but for postpaid what are you seeing upgrade market out there.
And then if you reported 8% was but also it looks like it's trending to use the iconic devices with speculative, but that's really kind of tap down to Texas.
But what was your updated number where you see it has.
Yes.
Our upgrade number for Q1 of 'twenty two is five points zero percent, that's down from five 6% in the first quarter 2021.
I'll put a bit of context around that because I think theres a few things happening.
The industry wide has been a aggressive.
Push around upgrades subsidizing upgrades.
And it'll be interesting to see how for example, at&t's price.
Excellent.
We've seen customers hanging onto their devices for much longer.
Their view is that there isn't as much differentiation any lines.
And so we're seeing people hang on to those devices for longer I think that affected.
And so.
Finally, we have we believe we have an opportunity to really dig in and invest now on the churn side.
We've tried over the last couple of quarters, and we think we've done a really good job of it to strike a balance between subscriber results in financial results and when the industry has extremely aggressive upgrade offers out there. We've tried to make sure that we're driving positive <unk> positive Ocs and we think we've done that.
We have an opportunity now to go invest substantively in China and to bring churn down and to further improve that upgrade rate and.
And that's what underpins the price protection guarantees and I talked about earlier on the call and so we think theres an opportunity to really begin to that now.
And go on offense.
In that area and so we're excited.
Thank you.
Two questions and sorry, it was a little bit late.
No problem at all that's good to hear from you.
Okay, and then no further questions at this time I'll now turn the call back over to Colin Thompson for any additional or closing remarks.
Okay. Thanks, everyone for your time today again, please feel free to reach out to IR. If you have any additional questions have a great weekend.
This concludes today's conference call you may now disconnect.
Yes.
Okay.
Yeah.
Yes.
Okay.