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 a question. During this time simply press.
Steve Starkey, 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 Tds Pizza radar executive Vice President and Chief Financial Officer. Thank you Bill Kras incoming executive Vice President and Chief Financial Officer.
From U S cellular LTE terrible precedent and she gets chief Executive Officer, Doug Chambers, Executive Vice President and Chief Financial Officer, and Treasurer and from Tds Telecom, Michelle broke wiki 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.
All but the Tds patch you are 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.
To 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 23rd we are attaching J P. Morgan technology Media and Communications conference in Boston.
Second we are doing a non deal roadshow in New York City.
And that's 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 to make progress on our environmental social and governance or ESG program.
As you can see on the slide we have had a number of initiatives that demonstrate our commitment.
I will 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 Vicki Villa <unk> CFO pick he has over 30 years of experience with the Tds enterprise and she and I spent the last six months working closely together to ensure a smooth transition.
Her 10 years as CFO of Tds Telecom, she was a key leader in business driver and she deserves much of the credit for 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 we will do an outstanding job of it.
CFO of Tds, and with that I will turn the call over to Vicki Vicki.
Thank you Pete and good morning, everyone.
As I step into this role I am fortunate to be the CFO at a company with such a strong financial foundation and exceptional talent.
Going 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 have 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 their 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 impacts 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, a Cam program, which we currently participate in today.
Each business unit will touch on their 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 with the people on the places that matter most to them.
On that slide you can see some of the strategic priorities that support our mission let.
Let me turn to slide eight.
This slide you can see the strategies that we've developed to drive revenue growth and increase return on capital over time, and let me start with postpaid.
Satisfied with our subscriber results in the first quarter, we continually try to optimize financial outcomes with subscriber Helen comes in the environment over the past four months over the past two years really has been extremely competitive and although we have a regionally tested aggressive offers in the marketplace, particularly from an acquisition standpoint.
We've also tried to be disciplined from a financial perspective, and you see that our strong adjusted operating income performance for the quarter.
I'm sure when we get to the Q&A section there may be some questions around AT&T as recent price moves.
Although 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 all experiencing increasing labor costs and increasing costs across our supply chain.
Having said we 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.
<unk> at the end of 2023.
We're highly focused on improving sure. This commitment is one component just one component of our plan to do this.
So let me come 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, our postpaid ARPA was up 4% year over year and you can see the impact on our service revenues.
Very encouraged by our ability to grow postpaid ARPA over time, we've grown this metric by 2% over each of the last three years.
You see strong growth in the first quarter of 2022.
And this <unk> growth is despite the headwind of a highly promotional environment that includes providing monthly credits associated with device discounts.
Negative impact on postpaid <unk>.
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 five millimeter wave fixed wireless access service available in 10 cities.
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 and mobile App transactions, we've substantially improves the customer's customer experience excuse me as measured by App 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 multi year five G deployment. The majority of our traffic is carried by sites that have fiber deployed.
Equally important we're getting five devices in our customers' hands, so far 34% of our subscribers have <unk> capable devices.
Thank you you mentioned the Iia, we continue to meet with key stakeholders to maximize our opportunity for wireless under that program.
You put some context around this in terms of dollars DIY JA will allocate nearly $43 billion of broadband funding to individual states.
And the 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 its fixed wireless as a compelling solution for broadband to the home in the business, where it's uneconomic or to put fiber.
We've seen speeds at nearly one gig over seven kilometers our technical trials and our product is marketed at 300, Max that's a tremendous improvement in speeds and capacity for Rural America.
Additionally, the investments we make in wireless broadband provides the additional benefit of improving our wireless mobile network coverage.
Clearly any infrastructure investments in tower is also help us drive greater levels of tower revenue.
So to summarize I am 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 we continue to try to strike the right balance between financial outcomes and subscriber outcomes.
I'll now turn the call over to Doug Who's going to take you through the financial results. Doug. Thanks Al. 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 aggression aggression in the competitive environment.
Postpaid handset net additions were down 33000, driven by the lower gross additions and an increase in churn, which I will discuss in a moment.
We saw a connected device gross additions declined by 4000, driven by lower tablet additions due in part to global supply constraints. This.
This was partially offset by an increase in fixed wireless additions.
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.
Tribute about the changes in consumer payment behavior, as we experienced very low in voluntary churn rates in 2021 due to the various impacts of the pandemic.
Total postpaid churn combining enhancements and connected devices increased due to higher handset churn and certain business and government customers disconnecting connected devices that were activated for various reasons associated with the pandemic over the past two years.
Moving to slide 11, prepaid gross additions declined 7000, largely driven by a lower prepaid gross add call 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'll discuss in a moment.
Just on roaming revenue declined 27% due to lower data volume and lower rates, what does that what are the factors contributing to this data 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.
Finally equipment 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 of the competitive environment.
Turning to slide 13.
Average revenue per user and average revenue per account were up 4%.
The increases were driven by favorable plant and product offering mix and increase in cost recovery surcharges.
The increase in device protection revenues.
These were partially offset by an increase in promotional costs.
Currently 33% of our handset customers are our two highest tiers of unlimited plans and we are focused on continuing to grow this number to further improve our Peru 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.
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 an increase in bad debt expense due to an increase in write offs related to involuntary deep actions, which have increased from very low levels experienced throughout the pandemic to historical pre pandemic levels.
Total system operations expense was essentially flat.
Excluding the loss on equipment, 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 2022, our guidance range for total service revenues adjusted operating income and adjusted EBITDA remains unchanged. This reflects our estimates for low single digit growth in retail service revenue.
Decline of high margin roaming revenue and the expectation of a continued highly competitive and promotional focused environment.
For capital expenditures, we are also maintaining our guidance range as our investments in <unk> and network modernization and the initial preparation for our mid band spectrum deployments remain on track.
I'll now turn the call over to Michele Buck Ricky Michelle.
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.
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 federal 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 Butte, Missoula, and Helena, We also announced two new markets in Wisconsin, Janesville, and Brookfield, and we expanded our western Wisconsin.
Johnson 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 includes 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 address 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 objective.
<unk> addresses grew 7% year over year in the first quarter, we completed the network upgrade to DOCSIS three one in our continuum market and increased our availability of one gig speeds to 62% of our total service addresses up from 55% a 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.
Total broadband residential connections grew 6% in the quarter as we continue to fortify our networks with fiber and expand into new markets.
We are on track and 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 two gig 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 costs.
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, we 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 the second quarter.
Now I will turn the call back over to Colleen.
Okay, David we're now ready for questions.
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'll take our first question from Simon Flannery Flannery with Morgan Stanley . Your line is open.
Great. Thank you very much good morning.
Just coming back to the.
The wireless competitive environment.
Churn 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 you're seeing in the marketplace and then on the involuntary.
Verizon had talked about a softening in store traffic what are you seeing on the macro or was this just that last year was very good.
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.
Right you kind.
Kind of quickly triangulated toward the the pressure from the subscriber results I'll answer the churn question to put a tiny bidder.
Context around.
The gross add side of the equation actually is still relatively strong.
You'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 from last year overall share of gross adds it's actually up from 19 in 'twenty and so the gross add side of the equation.
We clearly need to continue to focus on it and need to drive good performance Darren is actually its actually quite good.
The challenge is on add a lines and we've got some plans in place to address that and then I'm sure as you correctly identified.
When I 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 you see T mobile.
Continue to grow but not not.
Not in any way incrementally in our footprint than what you see nationally.
Same with cable, 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 it's to very aggressive upgrade environment, particularly from AT&T Verizon has matched that and so we really have to focus on two things one is add lines and.
And the other one is we've got to continue to focus on churn with our customers and.
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.
In economic conditions, <unk> telecom here as a recession, we enter it late 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 need to do 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 down churn.
So a couple of other plans, where it can 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 gross add Doug.
Doug Let me turn it to you to answer the involved question, yes sure Simon the reason on the involved side is what you cited during the heart of the pandemic in 2021.
We experienced similar to mobile watermark for bad debt expense was 56 million for the entire year consumer savings rates were high.
There is governments Jimmy is consumers are paying their bills and that manifests itself, but really favorable bad debt expense, what we're seeing 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.
You guys sort of benefit that we did during the pandemic.
Yeah.
Okay, great in store traffic.
The sense of the consumer slowing down or that the industry slowing down after a strong year.
No I mean, our store traffic was down slightly year over year, but nothing nothing concerning.
Alright, alright, thanks, so much.
Thank you next we will go to Sergey Blue, Jeff Ski with game co investors. Your line is now open.
Good morning.
Thank you guys for taking the questions.
My first question is on.
Kind of your go to market strategy L. T. So obviously you have the differentiate that.
The regional approach and you we're trying different things in different markets you have warehouse clusters that are non contiguous so you can do.
Does that maybe if you could reflect since we implemented this approach what have been the results. So far what has worked on that front, what could be improved and how do you make this approach more effective to maximize potential.
Gross said then share gain opportunities here going forward.
Yes, good morning Sergey.
The regional approach you can talk to you I'm very pleased with and let me put it in context. It 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.
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 regions.
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.
Going to be doing.
Relatively substantial move that was educated by the.
The original trial.
Another example, I'll give is the ARPA increase we've seen.
So we've seen very attractive arpin performance I'd 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.
The specific.
Land up sell.
Two.
Get 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're able to trial different approaches.
Mentioned different go to market.
Our individual regions and so very pleased with what we see so far and you can expect to see it continue.
At times, we 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.
Great plans fairly substantively region to region to make sure we strike the right approach and we vary 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 how that's proceeding.
Great.
My next question is on your fixed wireless strategy.
You're out in 10 markets and he who says that you are going to be.
As 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 in 2022, 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.
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 performs very well in rural areas, primarily where your best competition DSL or satellite, but what we see is customers like the product they like the experience.
We're sticking with 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 outs and then as we bring our mid band spectrum online C band $3. Five we also planning on we're also plan on using that spectrum to support fixed wireless.
And so we mentioned we've rolled it out now or should we build that millimeter wave product out to 10 cities.
Marketing speeds of 300, Megabits, we believe thats relatively conservative in terms of the actual experience. We can provide I mentioned, our technical trials are almost a gig over seven kilometers.
Of course, that's Sunny day.
No rain no wind.
So we try to be a bit more conservative of what we actually put out there in the market.
But we are offering a very high quality product at 300 mix and we will continue to offer that product as we rollout Midland.
So you can sort of think about our go to market strategy for mid band and millimeter wave.
And 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.
C band 345, as it becomes available.
And we can serve homes and businesses in that area and we believe we can provide a really good product at a really good way.
The interesting opportunity Vicki mentioned the <unk> edge.
Right now the cost us back of the envelope between 5% and $600000.
Tower enroll America wide range by the way around that cost estimate, but let's call it 500 to $600000.
We need a density.
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.
Yes, with the Iga, we can take that cost from 500 to 200 to 103.
Now all of a sudden we can profitably rollout that product and much lower density areas.
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.
Very costly to support and Theres very low customer densities.
Great areas for fiber they are great areas for fixed wireless and so we're very optimistic about 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.
Assuming that those those towers are subsidized in part by IAG $8 to the states.
The combination of those dollars helps fund fixed wireless to homes and businesses.
But it also dramatically improves to <unk> mobile experience in that area that will help our mobile business.
And because we're the fifth largest tower company in the country. We can then also market those towers to other carriers and that helps us with co location revenue.
So it's really a three part benefit if we're able to get some of those funds and that's why we're spending as much time on it as possible. So I'm very optimistic about that business area.
Great and.
My last question is.
Doug on.
The guidance and cost savings.
For tuning too so I think the midpoint of your EBITDA guidance implies about 200 basis points towards the less margin pressure compared to actual 2021 the results and.
I guess my question is what are some of the things that you are 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 a cost cutting and efficiency initiatives that you are.
Pursuing and how meaningful they could be.
Over time, what ourselves a larger buckets so those costs.
Cost efficient separate changes.
Yes, we have.
Cost optimization program that we're 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 that cell site rent to maintenance agreements.
Yeah.
Sure.
The mix of labor between contracts turtle and doing things more efficiently as well really even our insurance provider. We changed our recently is across the business. So we're finding a cost and revenue opportunities and you can see the results of that probably when you look at our margins in 2017 as a percentage of service revenues.
They were in the 'twenty twos.
Steadily.
Increased to an excess of 28 and 2020 now in 2021, a little step backward because of all the dollars we had to invest in promo, but we're still making progress on this cost and in a similar way in 2022.
The promo expense, losing that high margin roaming revenue, which were mitigating partially with roaming expense savings.
The bad debt expense increase that I talked about earlier, we're losing a little bit of margin because those things are all happening very quickly in the background. We are continuing to pressure on the cost again go into 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.
And it's 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.
Okay.
And good morning.
Just curious.
Where.
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.
Ill or expand focus the Tam.
Any updates on that front would be great. Please.
Hi, Mike.
The position on this hasn't changed which is.
Opened for business on that front.
My belief is that and I'll harken back to the conversation. We just had around fixed wireless II JA. My belief is that it makes no sense whatsoever to have multiple duplicative <unk> networks in Rural America.
345.
Adding 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 investment more worthwhile and to deliver a high quality experience in rural America. So I remain very open for that we've had multiple conversations we can.
<unk> to have multiple conversations.
Things do not move quickly.
And so I don't want to I don't want to indicate that anything is imminent, but I think that that viewpoint is shared across the industry around the capital intensity thats required.
I think some of that is probably behind Gtt's, most recent pricing move.
I think theres 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 a 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.
Or just U S cellular because you've built.
A large spectrum position over time.
As spectrum, not the gating factor to drive performance relative to cost for those users.
Yes.
So I think you have to divide this up Mike into now and future.
Now spectrum is not the gating factor.
Coverage remains the largest concern and that's why I'm, so bullish about Iga and the ability to put more towers in rural America at a lower cost.
Okay.
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.
Actually share Opex.
It doesn't make sense for me to climb a tower AT&T Verizon T mobile dish all of US climbing 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 in AR and VR World.
<unk> vehicles.
Those drones.
Those use cases will place a substantive load on.
Speed requirements for the network and in the long run finding creative ways to aggregate spectrum I'll go a level deeper whether it's on <unk> or mobile ran or there's a whole there's a whole variety of different ways to tackle this problem.
I think.
We fast forward.
Five years fast forward 10 years.
The opportunity to aggregate spectrum in a cost effective way in rural America will also be able to provide a differentiated service so near term cost efficiencies long term experience.
Experienced opportunity.
Thank you. Thank you.
Yeah.
Okay.
And there are no further questions at this time I'll now turn the call back over to.
Okay, we have a question from.
I apologize so I'll turn it back over to calling Thompson for any additional or closing remarks.
Actually we have a question from Ric Prentiss with Raymond James I apologize.
Okay.
Okay.
Yes.
Yes, Hi can you hear me okay.
Okay.
Yes.
You can hear me.
Thanks, everybody.
Hello, guys are being late busy day and earnings again.
Wanted to ask the question.
On partnerships you guys had talked previously about looking at how you might partner.
With items, obviously adds in the quarter were weak, but any update on partnerships. You are working with network sharing came up on the on the dish call today as far as asking just what they consider network sharing what are you thinking about partnerships and network sharing opportunities.
Okay.
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.
We certainly made that clear.
We continue to have discussions nothing imminent, but I think there's 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 conversations that were had.
Okay, Oh rotate to another question sorry about that.
Fixed wireless access does that come off.
It did ours.
Did you talk about <unk>.
Gross adds as far as are you reporting them I think you said in the press release and the gross adds were up or is it something you're reporting whereas it reported are they included in the numbers anywhere yet.
Rick at this time, we're not separately reported fixed wireless is included in our postpaid.
Count.
Ads and so forth and so that's where it is.
Currently.
Substantially all of our fixed wireless access customers are low band for <unk> customers.
Right and so I assume that's in postpaid other not postpaid phone them.
That's correct, yes, India connected devices.
Okay.
I'm trying to read through the transcript as we've talked to you two did you talk 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.
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.
So I remain quite generally quite quite pleased.
Yes.
And 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 it pre to post migration is that the consumers.
Better or worse off.
What 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 is macroeconomic.
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 its necessarily anything specific to <unk>.
The attractiveness of the prepaid business, there probably is slightly higher prepaid to postpaid migrations because of the aggressive upgrade offers that are bad had 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 folks.
Okay and last one for me on on Tds Telecom.
The OIBDA in the quarter was better than we were looking for it seems to be on cost of service is that something 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> and is that a more.
Trackable number or should we expect some bigger increases.
Yeah, Hi, Rick Thanks for the question.
Yes, adjusted EBITDA was up 3% this quarter, but.
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 reductions.
Which 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 towards the latter half.
It makes sense and one more back royalty on the switcher pool, but for postpaid what are you seeing as far as the upgrade market out there.
I don't know if you reported what you wont grew 8% was but how does that look like it's trending used to be iconic devices would spike a little bit, but that's really kind of tap down too. So just.
But what was your upgrade number where do you see it heading.
Yes.
Rick our upgrade number for Q1 of 'twenty two is five points zero percent, that's down from five 6% in the first quarter of 2021.
Okay.
Quite a bit of context around it Rick I think there's a few things happening I think that the industry wide there has been a aggressive.
Pushed around upgrades subsidizing upgrades.
And it'll be interesting to see how for example, at&t's price move affects that.
We've seen customers hanging onto their devices for much longer.
Their view is that there isn't as much differentiation anymore and so we're seeing people hang onto 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 argument are driving positive ocs and we think we've done that.
We think we have an opportunity now to go invest substantively in churn and to bring churn down and to further improve that upgrade rate.
And that's what underpins the price protection guarantees and I talked about earlier on the call and so we think there is an opportunity to really dig into that now.
And go on offense.
And that in that area and so we're excited about that.
Great. Thanks for taking my questions and sorry, it was even a bit late.
No problem at all that's good to hear from you.
Okay and there are no further questions at this time I'll now turn the call back over to Colleen 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.
Yeah.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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