Q4 2022 Telephone and Data Systems Inc and United States Cellular Corp Earnings Call

Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the Tds and U S. Cellular fourth quarter 2022 operating results conference call. 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 would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star One again I would now like to turn the conference over to Colleen Thomson Vice President Corporate Relations. Please go ahead.

Yeah.

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 sections of the Tds and U S cellular websites.

With me today and offering prepared comments are from Tds sticky Bill <unk> Executive Vice President and Chief Financial Officer from U S. Cellular LTE terrible President and Chief Executive Officer, Doug Chambers, Executive Vice President Chief Financial Officer, and Treasurer and from Tds Telecom, Michelle broke Lakey 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.

Tds and U S cellular filed their SEC forms 8-K, including the press releases and our 10-K yesterday.

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 review the Safe Harbor paragraphs in our press releases and the extended version included in our SEC filings.

In terms of our upcoming IR schedule on slide three in early March we will be attending the Raymond James Institutional investors conference in Orlando and the Morgan Stanley TMT Conference in San Francisco and then we will also be attending the New Street second annual fiber to the future conference on March 28.

And as always we have an open door or video call policy. So please reach out if you're interested in speaking with us.

I will now turn the call over to Vicki Bill Chris Vickie.

Okay. Thank you Colin and good morning, everyone. This.

This year end call is important as it gives us the opportunity to reflect upon our accomplishments over the past year, recognizing all the actions that both business units have taken to strengthen their competitive positions and plans to support our long term strategic objective of higher returns.

I'll remind you that our mission at Tds or to provide.

Standing communication services to all our customers and to meet the needs of our shareholders our people and our communities.

We continued to make substantial investments in our businesses in 2022.

<unk> free cash flow.

However, we made substantial progress towards our network goals as both business units will talk to you.

While investing still remains a high priority, we will moderate our capex spend in 2023 across the enterprise.

Turning to slide four our balance sheet remains healthy at year end was approximately $1 5 billion in available sources of liquidity, including cash term loans revolvers and asset securitization facility and we have long dated maturities and preferred equity extending any sizeable maturities too.

Very far in the future we.

We believe that we have the right mix of both long term maturities and shorter term financing to help fund our investments while appropriately managing through the current interest rate environment.

Both business units are continuing their rigorous multiyear cost discipline programs, taking place throughout the organization focusing on both opex and capex, which should contribute favorably to cash flow going forward.

I also wanted to highlight that during the quarter slide five we once again repurchased a modest amount of stock at both companies and for the full year 2022, we repurchased $40 million of stock at Tds and $14 million at U S. Cellular.

Importantly, we remain committed to our dividend every raised it once again for the 49th consecutive year. This stretch of 49 years puts us with an elite group of companies that have this many consecutive years of dividend increases for their shareholders.

And now I'll turn the call over to al.

Thanks, Vicki and good morning, everybody I hope everyone's doing well just a quick add it.

We repurchased $43 million worth of stock at U S cellular I think.

Vicky's number got cut off lease I heard $14 43.

Everybody's notes.

I'm on slide seven.

A fair amount to be proud of in 2022.

I guess the surprise last year was a challenging year.

Both from a subscriber standpoint, and with an aggressive competitive environment shifts in the macro economy.

Based on that competitive pressure, we did a lot of testing and innovation on a number of different promotional approaches and our goal and we've talked about this in the past has always been to balance subscriber goals with financial goals and some mid year, we pivoted to providing much more aggressive offers for existing customers.

The goal there was to drive higher upgrade rates and we launched flat rate pricing in a subset of markets in the second quarter and the third quarter.

And we expanded that offering across the entire footprint in November .

Those moves drove steady quarter over quarter subscriber improvements.

And back to that concept of balanced our postpaid <unk> growth was one of the best in the industry and that was really a highlight for us in the year.

Seeing good initial adoption of those flat rate plans.

On average nearly a quarter of our customers that are choosing flat rate are choosing higher tier unlimited plans.

Some customers on flat rate pay full price for their device that cigna in exchange for that reduced pricing and that helps lower our promotional expenses.

And mitigates the financial impact of this lower plan pricing.

Both flat rate pricing, along with our new and existing offerings has led to a meaningful improvement in our in contract rate.

We ended the year at 64% of our postpaid handset customers in contract and Thats in comparison to 59% in June when we initially launched in our new promotions and Thats significant because deals in contract customers churn at a much lower rate than out of contract customers.

Additionally, we also generated operational savings and capital efficiency through our cost optimization programs and Thats helped us mitigate the effects of increased promotional spend and inflation.

More specifically, excluding the impact of increased loss on equipment and bad debt expense, our remaining cash costs were down 2% year over year on a full year basis, and we still we think there are significant opportunities to reduce costs.

In 2023 and beyond.

Seeing positive results from our investment in our digital platform and that's in terms of both an improved customer experience as well as increased traffic.

Our customer experience now exceeds four stars in the mobile apps and.

And we're averaging more than 1 million App sessions per month, that's up 54% compared to 2021.

And this will be another driver of cost reduction moving forward as interactions move from our stores and from our care centers to digital.

Other areas of the business, we had good progress in pursuing our growth initiatives, we're seeing strong momentum in fixed wireless we ended the year with 77000 fixed wireless customers.

Up from 49000, a year ago.

Towers produced another strong quarter of results growing revenues by 14% in the quarter.

Ending up the full year up 13%.

On the network side, our modernization program in multi year low band five G deployment is making good progress.

We currently have approximately 50% of our pops covered with <unk> and <unk>.

Percent of our overall traffic is carried by sites supporting <unk>.

And you'll notice we achieved these results efficiently because we ended the year at the lower end of our Capex guidance.

We have planned in 2023 to continue our low band <unk> build out along with making significant progress on our mid band <unk> Buildout.

We plan to be able to make mid band available in portions of our network with that spectrum is cleared in late 2023.

Okay.

I also want to highlight we recently partnered with some local communities to bring broadband access using fixed wireless to some very hard to reach areas in both Maine and North Carolina.

Although the amount of state funded grants that we received was pretty small it highlights how we can put funding to work to help bridge the digital divide.

Turning to 2023 on slide eight our strategic goals and build on our investments and progress from 2022.

First and foremost you won't be surprised by this our top priority is to improve our customer results. You can expect to see us continue to pulse and trial pricing and promotions regionally.

Balancing subscriber growth with financial discipline.

And you can also expect continued emphasis on our growth initiatives.

We had our best year by far in fixed wireless in 2022, we expect more growth in 2023.

And thats, even prior to us getting access to that mid band spectrum.

We expect our tower portfolio revenues to maintain growth and that team is highly focused on expanding our opportunities in that space.

We're also expecting strong growth in <unk>, particularly in the Iot space.

As it relates to our mid band network rollout U S. Cellular has been engaging in pre coordination with the FAA ahead of our planned <unk> deployment.

Our joint coordination efforts to date confirm that our C band deployment can proceed without delay once that spectrum is cleared and thats crucial.

As any delay in deployment in mid band will harm Americans, who need connectivity to most and that will impede our collective effort to bridge the digital divide.

Before I hand, it off it does let me share a few thoughts on guidance our guidance assumes a continuation of aggressive ongoing promotional activities.

Our focus on cost reductions and efficient capital spend.

Our long term goal remains to grow return on capital.

While generating positive free cash flow and we're going to be pulling every lever at our disposal to improve it over time.

I also wanted to make the entire U S cellular team for navigating through a dynamic and challenging year.

I'm excited about the opportunities in front of US I think we're on the right path to drive the business forward and deliver long term value.

So let me turn the call over to Doug who will now take you through the operating and financial results in some more detail.

Thanks Al Good morning, let's start with a review of the customer results on slide nine.

Hosted handset gross additions decreased year over year by 20000 net additions correspondingly declined 18000, largely due to the continued highly competitive environment a decrease in the switcher pool and an increase in involuntary churn.

Connected device gross additions increased by 9000 net additions increased by 13000, driven by fixed wireless customer growth.

As <unk> mentioned, we continue to see momentum in fixed wireless with our base of customers up 57% from the end of 2021 and 17% from the third quarter of 2022.

Postpaid handset churn increased from the prior year driven by higher involuntary churn is throughout 2022, the frequency of non paid customers increased to pre pandemic norms.

This was offset by a decrease in voluntary churn, partially driven by the growth in the percentage of in contract customers.

Now, let's turn to the financial results starting on slide 11.

Total operating revenues for the fourth quarter decreased 2% from the prior year.

Retail service revenues were relatively relatively flat as higher average revenue per user was offset by a decrease in average postpaid connections.

Inbound roaming revenue declined 54% due primarily to lower negotiated rates with other carriers, which also has the impact of decreasing our roaming expense.

Overall bromine expense declined at higher amounts in roaming revenue in the fourth quarter and the full year 2022.

Equipment sales revenues decreased by 4% due primarily to a decline in the average revenue per unit as a result of our promotional offers.

Our postpaid <unk> at our pilot results are presented on slide 12.

<unk> mentioned, the strong increase in our pool and this increase along with the increase in our path was driven primarily by favorable plant and product offering mix and increase in cost recovery surcharges.

And an increase in device protection revenues.

Okay.

These increases were partially offset by an increase in promotional costs.

We continue to see consistent growth in our highest tiers of unlimited plans and 41% of our postpaid handset customers are in these higher tier plans at the end of the quarter.

Our quarterly financial results are shown on slide 14.

This is for this discussion I will refer to adjusted operating income before depreciation and amortization as adjusted operating income.

Adjusted operating income declined 10% driven by increases in loss on equipment and bad debts expense.

<unk> commented earlier, we continued our new and existing promotion throughout the fourth quarter.

This promotional rewards are existing customers increased our in contract rate and contributed to the strong increase in <unk> as our customers adopted our higher value plans in conjunction with with these offers.

This promotion was also the primary driver of a $9 million increase in loss on equipment.

Bad debts expense increased $17 million as our involuntary churn rate has returned to pre pandemic levels and the average write off has increased as a result of customers selecting higher priced devices, partially attributable to promotional incentives.

As a reminder, bad debt expense trended lower throughout 2021, as a result of the continuing impacts of the pandemic, including relatively higher personal savings rates, which resulted in stronger customer payment behavior in the prior year.

<unk> mentioned, our ongoing cost optimization program and this continues to deliver results. Despite our current inflationary environment and our ongoing <unk> rollout excluding cost of equipment sold and bad debts expense other fourth quarter cash expenses decreased 3% year over year.

This was driven by lower roaming expenses, resulting from favorable rates with other carriers as mentioned earlier and actions to keep all other cash expenses flat year over year.

Now, let's turn to slide 15, where we show our full year financial results adjusted operating income for the year declined 9% driven by similar factors mentioned for the quarter.

Adjusted EBITDA, which incorporates the earnings from our equity method investments along with interest and dividend income also decreased 9%.

This decrease was primarily driven by the impact of the implementation of C band spectrum leases and certain partnerships and we expect this impact to continue in future periods.

Turning to slide 16, I will cover our guidance for the full year 2023, our guidance contemplates the impact of our subscriber base decline in 2022.

Continued highly competitive and promotional environment.

And a continued decline in roaming rates, which we expect will cause a corresponding decline in both roaming revenues and roaming expense.

We expect ranges of approximate approximately $3.052315 billion in service revenues $725 million to $875 million and adjusted operating income and 175 million to $1.0 billion to $5 billion in adjusted EBITDA.

For capital expenditures the estimate is in the range of $600 million to $700 million. We're very pleased with the progress we have made to date in our <unk> rollout our investments with low band and network modernization and mid band five G deployment remain on track and this guidance reflects our continued commitment to invest in <unk> and our <unk>.

Handing network, while prudently managing the level of this investment and the free cash flow of our business.

I will now turn the call over to Michelle Burke with Michelle.

Thanks, Doug Good morning, everyone I.

I am pleased to report on Tds telecoms fourth quarter and full year results and I'm also proud to highlight the progress we made in 2022 towards reaching our longer term 2026 goals that we shared with you last year.

At Tds Telecom, we are grounded in our mission and that mission is to create a better world by providing high quality communication services connecting people and businesses supporting education and strengthening communities.

Our goal is to be the preferred broadband provider in the markets we serve.

On Slide 18, you can see our strategic areas of focus that will help us achieve this goal.

Investments in these strategic priorities will drive profitability and improved returns over time, ultimately strengthening Tds telecoms financial and market position.

So what exactly are we doing we're growing our scale in revenue primarily through our fiber market expansion and we are continuously streamlining and automating our operations to reduce legacy costs.

We keep the customer at the center of everything we do continuously investing in customer experience improvements.

And finally, the foundation of our entire business is our highly engaged resilient and dedicated work force we invest in our people to ensure we can attract and retain top talent.

So moving to slide 19, let me update you on our progress towards achieving our longer term goal and I'll tell you. The headline is we are on track.

There are certain metrics, we're monitoring to ensure we're moving at a pace to reach our 2026 targets.

I'll highlight those three metrics for you now.

First metric is the number of service addresses we.

We are targeting $1 2 million marketable fiber service addresses by 2026, we ended 2022 with 582000. So we are halfway there.

The second metric is the percent of service addresses that are served by fiber.

We're targeting 60% of our total service addresses to be served by fiber by 2026, and we ended 2022 with fiber to 39%.

This reflects progress in growing fiber through our expansion markets as well as fiber of our incumbent markets and.

And specifically we are working to serve 50% of our ILEC service addresses with fiber and we're making good progress at.

At the end of 2022, we were at 36% of our ILEC addresses being fiber dark.

The third metric is the percent of our footprint with speeds of one gig or higher.

By 2026, we're expecting to offer those speeds to at least 80% of our footprint.

And we finished 22 2022 with 66% gig speeds.

So we're pleased with the pace of our fiber builds and with our fiber expansion results. So far we have continued to successfully navigate challenges in getting those builds completed.

We've been scaling up our service address deployments since we launched this program and we plan to continue that in 2023.

Based on our experience we are seeing positive contributions from our market launches starting around the three year, Mark and we still expect to achieve broadband penetration rates of at least 40% in steady state.

The success that we've seen in our early markets is validating our business cases, and our expectation of low to mid double digit returns on these projects.

On slide 20, I'll highlight some key accomplishments from 2022.

We grew our footprint by 9%, which came from delivering 133000 marketable fiber service addresses. This is a 50% increase over what we delivered in 2021 and.

60000 of those service addresses were added in the fourth quarter that was our highest quarter yet.

At year end, we had about 100 communities that are in various stages of development during.

During the fourth quarter, we began offering service and several new communities, including Oshkosh Auclair in Janesville, Wisconsin, along with Nampa, Idaho.

Our momentum is strong and we're going to continue scaling up to deliver 175000 fiber service addresses in 2023.

This will be an increase of over 30% from what we delivered in 2022.

As a reminder, we expect seasonality will impact the quarterly cadence of service address delivery. So this is going to steadily build throughout the year.

We also continued to address the broadband needs and our most rural markets by upgrading our copper networks with support from state broadband grant programs and by meeting our obligations under the federal ATM program.

We're still optimistic that the FCC will adopt an extension of the a Cam program and we hope to have a final decision soon.

We also still believe that extending the current federal a Cam program first and then pursuing the bead program funding will provide the fastest path for Tds telecom to take fiber deeper into our communities.

All of these broadband investments are driving positive results.

As shown on slide 21, we experienced a 4% increase year over year and total broadband residential connections.

Shown on the graph on the right, we see demand for greater broadband speeds with 72% of our customers, taking 100, megabits per second or greater and thats up from 66% a year ago.

As I mentioned before Tds Telecom can now offer at least one gig service to 66% of its footprint.

And in some markets, we are now even even offering an eight gig speed product.

In areas, where we offer gig service, we're seeing 22% of our new customers taking this product.

And finally, our focus on fast reliable service has generated an 8% increase in total residential broadband revenue.

On slides 22, and 'twenty three I'll share some financial highlights.

Total revenues increased 1% for the quarter and for the full year as broadband growth offset our legacy declines.

Residential revenues across all of our markets increased 4% in the quarter.

Rice increases and overall product mix, partially offset by promotions drove a 4% increase in average residential revenue per connection.

As shown in the chart on the left expansion market revenues increased year over year following the timing of service address delivery.

Residential wireline incumbent in cable revenues increased year over year due to price increases and growth in broadband connections, partially offset by declines in video and voice connections.

Commercial revenues decreased 5% in the quarter and for the full year, primarily driven by lower CLEC connections.

And lastly, wholesale revenues decreased 2% for the quarter and for the year.

Cash expenses increased 8% in the quarter and 5% for the year due to both supporting our current growth as well as future growth.

So we are incurring costs, but the revenues have not come yet.

These costs to support our fiber expansion include direct costs, such as sales marketing real estate and technicians. In addition to shared services.

As expected the increased cash expenses to support our growing fiber program resulted in a decline in adjusted EBITDA of 13% for the quarter and 6% for the full year.

Capital expenditures of $556 million were up from the prior year due to increased investment in fiber deployment as well as advanced capital purchases to mitigate longer supply chain lead times.

Keep in mind that these investments support our multiyear strategy and our goal of increasing free cash flow and return on capital over the long run.

On slide 24, we provided guidance for 2023.

Our guidance factors in the foundational investments, we're making to enhance our network and expand our footprint over the next several years.

We're forecasting total telecom revenues of 1.03 to 1.06 billion.

This reflects our goal of top line growth driven by continued improvements in residential revenues across all of our markets offsetting declines in the legacy parts of our business.

Adjusted EBITDA is expected to be between 260 and $290 million in 2023 <unk>.

Adjusted EBITDA reflects our continued fiber expansion, which requires upfront spending.

By the end of 2023, however, almost all of our 100 communities will have been launched.

As our market builds mature and we increase our penetration we expect the pressure on adjusted EBITDA to lessen over time.

Capital expenditures are expected to be between 500 $550 million in 2023.

This reflects increased spend on fiber service address delivery and reduced advanced equipment purchases as supply chain constraints are expected to lessen.

And nearly 90% of our capital spending is allocated to broadband growth.

Before turning over the call I want to thank the team for all of their hard work in 2022, we accomplished a lot and we are executing on our priorities and I expect that momentum to continue into 2023.

And I'll now turn the call back over to Colleen.

Okay. Operator, we are ready for the first question.

Our first question will come from the line of Ric Prentiss with Raymond James. Please go ahead.

Hi, Rick.

Yes.

Rick you May have your line on mute.

Yes can you hear me and good morning, everyone.

Hey, Robert Here, Inc.

Great sorry about that yes.

Hey, a couple of questions if I could first.

For U S cellular LTE you.

You laid out with kind of the 'twenty three guidance, if we think back to 'twenty two guidance you did pivot midyear.

And you addressed kind of the more competitive marketplace the aggressive promotions.

It sounds like the 23 guidance assumes that competitive pressure continues as opposed to maybe a pivot that might be needed.

Or just trying to compare how we started 'twenty two guidance with how we're starting 'twenty three guidance.

Hey, good morning, Rick I'd say that the way you've characterized it is accurate.

We take the trends in essentially the more of the moves that we made in the market.

In the second half of 'twenty, two meaning a more aggressive approach to upgrade pulse in and out.

You may notice, we only did it here about a week or two ago, we actually pulled our existing famous new promotions.

And we replace them with no hidden requirements offer thats, specifically designed to appeal to kind of multi line customers.

At the same time, we also have our flat rate pricing in place, which we think is highly competitive in the marketplace.

So with those moves those kinds of moves in response to the competitive environment you can expect to see in 2023.

And so we've seen the benefit of it right. If you look quarter over quarter. We've seen continued positive movement in our in our net add performance.

And so in general Yes, I think you can probably expect a 2023 in a similar fashion to the second half of 'twenty two both in terms of our view on the competitive environment as well as the moves that we're doing to compete well in it.

There's been a lot of debate about the industry level of ads coming back down to a more normalized level versus what maybe happened what's your view of the industry level on the wireless adds area.

Let me, let me hand, it to Doug I think you've got a you've got a sense of this goodness, yes, Rick we're projecting about one 5% for an industry increased during 2023, so positive population growth although were extend so kind of in between those two data points.

Okay, and we're sitting here in February you've instituted.

Getting more people under contract.

How is that playing out sometimes I think you've said in the past maybe six to nine months that should hopefully benefit into churn or are we seeing that have you got enough data points to get comfortable and does that mean.

As we think about 'twenty three ending we're not going to have negative postpaid phone adds or we won't be as negative just trying to think through the churn Ashland with the contract and how you set up with the postpaid phone through the year.

Yes, so Rick I mean, we have we've we've stayed away from kind of projecting specific net add performance or when were positive or when we're not in general what I will tell you is that the moves that we've made to get people more under contract and get more upgrades, we're starting to see some positive signs on the consumer.

Mers side when it comes to improve churn.

We offset that a little bit in the fourth quarter with some higher beta feature.

Don't really see that in the numbers in general we expect to see that churn continue to improve throughout the year because of getting more customers under contract couple that with what we believe will be improved gross add performance due in no small part to flat rate and.

And we do expect to see that general momentum year over year of improved net adds continue.

Important to highlight or we showed pretty dramatic improvement every quarter. When it comes to net adds quarter over quarter Q1 is always a tricky quarter relative to Q4. So I don't necessarily expect that you can just draw a straight line, but in general I think the moves that we have in the marketplace are resonating and I expect them to.

To drive positive performance.

Okay last one for me. Thank you I appreciate the comments about capex moderate anything the market liked hearing that from the standpoint of free cash flow monitoring and in this interest rate environment.

Coming back to Capex, what it means to wireless LTE.

Two customers understand what <unk> means with <unk> gives them.

If not what would take to help customers understand what <unk> means.

An interesting question.

I think that there is there is a couple of different ways, you could think about answering that.

<unk> got on one hand.

When you look at how the industry has talked about five <unk>.

I was wondering if customers are a little numb to all.

All the various competing messages in the marketplace.

Your best this and fastest stat and broadest this and I do wonder, sometimes how it's resonating with customers.

We're pleased I will tell you with the rate of our <unk> build out.

And what we've been able to deliver in terms of capabilities to customers and so.

We talked earlier about the specific metrics and over 50% of our sites modernized carrying over 80% of our traffic.

We do see our customers give us feedback that where we modernize the network not only are the.

The network performance metrics better, but the perception is meaningfully better.

And so that would be the flip side to the coin of our customers getting numb to it I think that customers are numb to claims I don't think theyre numb to the performance that we're that we're bringing in so we see it in the performance that we see in the perception scores and that's an important distinction right because I'm chuckling, Mike Irizarry.

Sitting here next to me right Engineers will always say well you know the numbers are a lot better and then Youll say, okay, what do customers care.

The.

<unk>, where we modernize our network says, yes customers care that the speed performance that we're able to deliver is meaningfully better or in the early stages of our <unk> assay launch and so I think as we rollout SA <unk>.

Customers will start to see a meaningfully improved experience and we also talked about mid <unk>. So as we rollout mid band.

That will result in a meaningfully better experience.

So and then I'll just kind of loop back to how you led off the question, which was around capital and what we're doing is we're balancing the feedback that we're getting back from customers in terms of what is meaningful to them.

With a prudent and targeted approach to where we spend capital and so we feel very good about how we're managing the balance of spending the money, where we need to and getting the customer feedback and the customer metrics in a place that we're pleased with it. So hopefully that gives you a sense of how we're tackling it.

Guys I appreciate it I will say Walter Alright, Thanks, Rick next question.

Your next question comes from the line of Simon Flannery with Morgan Stanley . Please go ahead.

Great. Thank you good morning, if I can start LTE with fixed wireless good to hear the momentum is growing well, you've obviously got the seaborne coming on later this year. So what's your latest thought on where you wanted to deploy this product is still going to be kind of an ex urban rural kind of a product or do you think we might see a broader.

<unk> seen quite a lot of suburban success with T mobile and Verizon and a lot of interest as well.

And then both for you and on the wireline side just latest thoughts on the bead program do you think that's something that you have a lot of interest in participating in either on the wireless or wireline side. Thanks.

Yes, good morning, Simon and good to hear from you.

Let's start with fixed wireless so our approach really is.

I suppose from a deployment perspective, it's a little bit different it's almost the inverse of what what T mobile is doing but.

But I actually don't think we view the market that differently and so let me just explain.

Where we've seen huge success and this product is in rural and then let's call. It the bridge between rural and suburban and recall that right now what we're deploying is really it's basically a low band products.

A couple of mid band Im sorry, a couple of.

Millimeter wave trials, but the vast majority of our sales of this product thus far have been on low band.

And we feel proud of the experience that we're delivering but that is not a particularly high speed experience to me. It speaks to the opportunity that's in front of us because when we do put when we do start launching this.

On mid band.

We will be able to deliver a product tentative we were looking at 300 Meg down and.

When you deliver that that opens up I think a whole new market opportunity for us.

And so if I think about 2023.

Still we see a lot of growth potential ahead, just on low band.

That product will be rural call it suburban we.

We see a lot of opportunity, whether it's a cable monopoly.

Works very well against cable.

As we launched mid band starting in 2023 will then I think being able to move from suburban to more closer to urban areas. Because we will have a highly competitive product.

The one place and I've been consistent about this the one place I don't see this hunting is where there is where there is robust fiber to the home.

We will still obviously happily sell to whichever customers want to buy it from us, but the basic physics of fiber to the home <unk> would say that those customers should go with fiber and fiber players will be able to price. It accordingly, but we think this product is compelling everywhere else and thats, a really substantive geography, that's still available.

To us so we see a lot of runway with this not just in 'twenty, two with or without I'm, sorry in 'twenty, three with low band, but in 'twenty, four and beyond as we enroll mid band out.

Let me talk for a moment and then I'll hand, it over to Michelle. So she can give you a sense of how telecom is viewing the bead opportunity.

We're still quite optimistic about about bead and about <unk> dollars flowing to fixed wireless.

We've done both a fair amount of mass on our own and we have a lot of conversation with states and our sense is that.

Notwithstanding.

$46 billion going across the United States.

That is still not going to be sufficient to cover every home and business with fiber and I know there's people that are trumpeting that that are saying that.

We can connect everything with fiber.

Those people have not spent much time in rural America, I have and there is there.

There is a lot of places out there, where it's simply is not going to be cost efficient meter cost efficient more time efficient.

To connect these homes and businesses with fiber, it's a tough sell to go to people in rural areas and to say Hey, no problem, we're going to be able to cover you just wait 10 years.

We can deliver a product.

Certainly when we rolled out mid band, we can deliver a product thats 300, megs down keep in mind the threshold for <unk> 100 down in 'twenty. So we can safely meet that threshold.

We can do it with fixed wireless and we can do that in a relatively short period of time and so we.

We do see a lot of opportunity in working with the states on this.

As you know I think we are in the middle right now of the map challenged process, we're going to have to get through the back end of that.

I don't expect to see meaningful state dollars flowing until early 2024 at the earliest.

But we still view that as a significant opportunity for us.

Both in terms of overall growth.

Bringing new customers on with fixed wireless and then the beautiful part about that is that when we bring those new customers on with fixed wireless we have a pretty aggressive wireless wireline bundle in the market right now and so that will help us grow our wireless space, our mobile base, along with the fixed wireless customer.

But all the other thing that it will do is it will bring down our capital flows. So as we have as we want to expand towers and as we want to expand the tower business.

Being able to do so in a more economical way because we're able to leverage some of these <unk> will help us put towers in places, where we have an <unk> before have been able to before.

And then we have the revenue opportunity when we have those towers in place to grow our tower revenue. So right now our co location right is just north of one five and we're the one mind you <unk>.

Industry average is two three and so we have the opportunity to put put tower co location revenue to work and so.

We really see three revenue streams coming off that <unk> dollar fixed wireless stream revenue stream the mobility revenue stream in the tower co location revenue stream.

And based on our early conversations with states, we're pretty optimistic that.

A good part of that money is going to go to fixed wireless.

I know telecom is thought about this as well in terms of fiber opportunities and so Michelle let me hand. It to you you can give a bit of color on that side.

All right Thanks al space.

So Simon generally from the Tds Telecom perspective, we agree with everything that <unk> said, but we do have a little bit of a unique perspective.

From the wireline side, so for us Theres actually two federal programs that are in front of US. The first one is the a cam program, we already participate in that we're already almost halfway through that program.

And the FCC is considering a proposal to take the addresses that are under that program and now require higher speeds be provided to those addresses in exchange for more.

More years of revenue support on the backend of that program.

From our perspective that would be a great development that would help us get those faster speeds theyre talking the same speeds as the <unk> program.

Hundred down 20 up.

That would be a great opportunity to get those speeds faster to the customers that are already part of that ATM program.

And that program is already established it's already running and Thats something that we could pivot into very very quickly.

So that's one track for us that we see as a great opportunity, but then the <unk> program.

Is also another opportunity for us and we do believe that there are going to be other areas that we can take fiber under the <unk> program and we would be excited to participate in that program. We agree with what <unk> said that its probably going to take until 2024 until money in funds start flowing under that program. We've got.

To get through the mapping challenge first this year.

Our companies are working hard with the FCC on that.

But yes, the combination of a cam and bead, we really think those are going to be two important opportunities to continuing to get higher faster better broadband.

It likely all through fiber out to the most rural areas of our of our service territories.

But there are going to be places, where <unk> said, probably doesn't make sense to take fiber all the way out and if there are opportunities for us to work with U S. Cellular.

On partner in order to best serve those customers, we're certainly already talking about that as well.

We'll pursue that as an opportunity.

Alright, thats good to hear and you talked about accelerating the fiber build this year I think <unk> had talked about a higher cost to pass going up to about $1200 have you got any color on.

Whats kind of developing their theres concerns about inflation labor supply all of that stuff any color therapy Greg.

Yes, so we are planning to keep the keep scaling up and keep delivering more addresses in 2023, we're shooting for 175000 service addresses under the program this year compared to the 133000 that we delivered in 2022 each year, we keep.

Developing a nice increase in address delivery.

So.

Yes, we are going to keep accelerating that program on our on our path to our $1 2 million by 2026 in terms of the actual cost of the build.

That's already all factored into our business cases over the last year 18 months, we did start to see some of our contract RFP proposals come in with slightly higher costs, but we were really diligent in working with those vendors and trying to find the opportunities where we can reduce some build costs and in those markets.

And so when you factor everything into the business case. So that's why you'll hear me talk a lot about the business case still hang together can we still achieved the low to mid double digit returns that we're looking for.

Even with all of those cost factors adjusted in that we've all seen over the last 12 to 18 months, we're still getting those really attractive returns out of those business cases and.

All of that is already factored into our.

Our guidance and our Capex expectations.

Great. Thank you okay. Thank you Simon next question.

Our next question comes from the line of Phil Cusick with Jpmorgan. Please go ahead.

Yes.

Good morning, Jerome on for Phil Thanks for taking my question and congrats on the quarter I was hoping to drill down into the solid low single digit to mid single digit <unk> growth. We've seen on the postpaid business kind of what's driving your ability to grow our <unk>. Despite the heavy promotional environment and pausing price hikes et cetera.

And then as we look at 2023, how should investors think about <unk> growth moving forward. Thank you.

Yes, good morning, Jerome Doug Chambers here so.

With respect to our <unk> growth.

One thing that drove it during the year was moving customers up the stack, we started the year with <unk>.

32% of our handsets.

Our top two tier plans ended the year with 41% on top two tier plans a lot of that was driven by.

Strong efforts by our sales team, but also promotional requirements that we had tied to our new and existing offers so that was really a tailwind for our pool, we're doing much better on device protection revenue the profit the profitability of that product, we've been migrating customers to new provider, where we earn a better margin as well as we slightly increased.

<unk> penetration of that project. We also had some cost recoveries surcharges that went in at the beginning of 2022 that helped as well so all of that led to the 4% increase.

See look into 2023.

No.

Building on <unk> still a goal that growth rate is not.

To sustain at that level.

One of the reasons is flat rate pricing obviously, we.

We have a lower rate for flat rate pricing, but in exchange for that we don't support that with the same level of promotion. So there is an offset there from a profitability standpoint, but just looking at <unk>.

That rate pricing alone is a bit dilutive.

But we're still focused on moving customers up the stack like I said, 41%, we have a long runway to go to sell our higher value plans to our customers and are optimistic about that so that's sort of an overview of how we think about 2023.

Okay. Thank you. Thanks next question.

Your next question comes from the line of Michael Rollins with Citi. Please go ahead.

Good morning.

Two questions if I could one is okay.

So looking at slide 16, and just taking a step back the service revenue guidance is for a slight decline can you.

Pack that a bit more in terms of the impact of roaming relative to what's happening in terms of the core business and.

The ups hearing opportunities the competitive landscape and then.

And as you think about the service revenues overtime is their conviction that U S. Cellular Ken positively grow these wireless service revenues on a one to three year timeframe.

And I'll follow up with one another if I could.

Yeah sure so good morning, Mike.

So the service revenue guidance you hit on the roaming revenue has been declining it will continue to decline that's impacting service revenue, but it's important to remember the reason for that is that we're driving great styling and theirs.

Offsetting impact on enrollment expense, whereby roaming expenses going down so from a profitability standpoint, it's actually slightly accretive this year and we project is well into 2023, when you go down to the operating cash flow line. So.

That's actually.

A positive but on the revenue line along there is a decrease there the other thing with service revenue. We lost connections during 2022, Theres, obviously carryover impact of that into 2023, that's factored into the guidance. We're certainly offsetting that with some increased <unk> revenue.

Particularly in Iot wholesale as well as the tower revenue and some other areas, but all of that factored in is where we ended up on service revenues and over time, absolutely. Our goal is to grow service revenue and Thats.

Key priority in <unk>.

<unk> with growing our base of connections and Thats, a key motivator for implementing flat rate pricing and having a really compelling.

One and two line.

Over three or four line price point for our customers.

To grow that base.

And yield service revenue growth over time.

And then just looking at the investment opportunities that you've been describing in fiber and wireless what are your latest thoughts on the opportunity to monetize the tower business or your wireless investments from whatever would be in the best interest of the operating strategy and for shareholders.

Yes so.

I mean, it's something we thought we consistently evaluate right we want to make sure that the assets that we have and the capabilities that we have can generate more value to us.

Moving forward and put together than they can in isolation and sold and we continue to believe that that is the case and I'll use the towers is a good example.

Our tower portfolio drove double digit revenue percentage growth year over year.

We expect to see continued revenue growth in that portfolio I mentioned earlier the co location rates just over one five versus industry averaged two three we've got a lot of growth on the tower side.

And interestingly enough in this is de Minimis right now from a revenue perspective, but it gives you a sense about the opportunity here in.

In the last quarter was the first time, we actually.

Sold not just access to the tower, but also access to with shelter.

And so and we are discussing generator access we're discussing backhaul access.

Those are things that we can market to a potential tenant.

At our tower competitors cannot and the reason they can't because they don't operate a wireless network in conjunction with a tower portfolio.

Having the assets together benefits the tower business and drives more growth in the tower business.

Similarly, right if I fast forward and take a look at the build on <unk> and even getting to six <unk>.

We talked about.

Being in a good place with our with our network build and being able to be a little bit more conservative with capital into next year.

But in the long run.

As you move five <unk> to six <unk>, what is what is <unk> going to be obviously the standards are still being worked out but you are talking at a high level denser networks and more intelligence at the edge and if you're a denser networks and more intelligence at the edge. It means youre going to need to be touching your towers a lot more than that.

Fact that I don't have to beg bags permission and Oh by the way pay out the nose to a tower.

The landlord.

It makes mikes network cost slower.

So we continue to evaluate it. It's a question we ask ourselves every quarter, we want to make sure we're comfortable with the answer but we remain comfortable with the answer that those assets are better together and drive more growth together and not just revenue growth cash flow growth as well.

Thanks.

All right. Thanks, Nick next question.

Your next question will come from the line of Sergey <unk> with Gamco investors. Please go ahead.

Good morning, guys. Thank you for taking the question. My first question is for LTE on the fixed wireless side.

<unk>.

C band spectrum becomes available and they will start deploying that how do you plan to prioritize the fixed wireless build.

In terms of geographies or types of markets and also how are you thinking about the capacity at <unk>.

Wireless business versus capacity needs of your core mobile business to make sure is that you.

You will have sufficient capacity.

The core mobile business doesn't suffer.

Yes, Eric Great question.

The beautiful thing about that fixed wireless business.

Is that so with the exception of a few very very targeted builds here and there is that that business builds on the investments that we make to support our core mobility business.

So.

Although we have a few targeted builds where we kind of have to where we look to increase capacity to.

To support the needs of our fixed wireless customers, that's very much on the margin.

The bulk of that business is driven by the underlying investments made to support our mobility business and what that means is that the revenues that that fixed wireless business generates a really attractive margins.

And those attractive margins turned into attractive cash flows.

Thus far we have not seen meaningful capacity challenges driven by fixed wireless.

We we have been able to architect the network, Mike and team have done some really creative things to make sure that we're in a good place from a capacity perspective.

And you mentioned the C band deployment and the $3 four five deployment also which will happen kind of throughout 2023 that will add more capacity and that will enable us to serve and support those customers more effectively so we don't see meaningful capacity challenges arising from this business.

The build of the business will continue to be driven in the prioritization of the business will continue to be driven by the core mobility business and.

That's why we continue to be really bullish about the economics I've referenced this when I talked about about beat.

I mean, if you were building.

If youre going to go build a tower in rural America.

We're only going to subsidize that if you're only going to pay for that tower with fixed wireless customers.

And the range of 200 to 250 customers within a seven kilometer range of that tower, that's pretty dense for rural America, and so it's difficult to make the economics stand alone on fixed wireless, but the beautiful part is we don't have to.

We have a core mobility business that subsidizes it and so.

That capacity and the capacity demands that business worked out pretty nicely and we expect that to continue since we also have the the mid band spectrum coming online.

Great.

My second question is for Doug.

You mentioned continued cost optimization efforts and obviously you have several of those margins continue to be under pressure for various reasons part of it is competitive intensity.

The market part of it is your comment there moves.

All of that is putting pressure on margins, but what are some of the cost efficiency initiatives that you have in place for <unk>.

'twenty three and beyond that you think could provide.

Meaningful.

Some of those pressures what ourselves larger.

So of cost savings that you see over the next.

A few years.

Yes, it's really across the business surveys. So every every single area, we're addressing and we have a significant amount of Av.

Savings built into our budget, but examples are we've been driving backhaul rates way down sell side for US we have a program to drive those down we saved quite a bit of money with our marketing media agencies over the past years, and we'll continue that going forward.

With respect to network maintenance.

And network software, we've done quite a bit with respect to renegotiating contracts with our vendors on those so you look at the big buckets of spend that's where replacement the main focus, but it's really across the business that we're driving savings and we've been doing it.

Through a formalized program since 2017, and we haven't let up.

Great.

My last question is both for LTE.

Michelle.

I believe earlier this year at the Investor Conference Management mentioned that in 2023 U S cellular and Tds Telecom will step up our collaboration efforts.

In closing and then begin a relationship you are selling each other's products eventually applying for big funding or just broaden the government funding together could you could you provide more color on this initiative, thus far as to what you have already been doing kind of in 2023.

And what forms of collaboration or partnership do you see.

As the greatest value, creating opportunity for both companies over medium term.

Okay.

Michel do you want to tackle that one.

Yes, I can start on LTE, you can certainly feel free to jump in so.

Yes. Thanks.

Yes, we did mention a couple a few weeks ago I guess it was some collaboration efforts that we're doing together on the <unk> front Tds Telecom is is working our way through all of the details of how we can get an <unk> product launch so that we can get wireless into our bundle of services that we offer to our.

Customers.

We hope to get that product launched sometime during 2023, hopefully by mid year.

And certainly we would want to partner with U S cellular under.

Territories overlap.

However, our territories don't overlap perfectly.

40% of our addresses can be covered by the U S. Cellular wireless network. So we will have to also supplement and partner with with other wireless carriers as well. So we are in the process of working through that.

We also mentioned earlier one of the conferences and we're still working on the ability to do some cross selling.

So selling Tds telecom broadband through U S cellular retail stores in certain geographies.

We're working through the details of that as well and seeing.

That could be an uplift opportunity for both companies.

And so we'll probably start that in a small way and test that out do some learnings and then see if that could be expanded into anything bigger and as I mentioned earlier on the bead program.

We don't have all of the state program details yet those are still coming but once we get those will be a little bit more.

I do.

Yes, it firm in our discussions with each other but we've already started high level discussions about how can we partner and some of those most rural areas in order to reach customers in the most economical way possible through a combination of fiber and fixed wireless so I think.

Those are the primary things that we're doing and talking about together this year, but LTE is there anything else that you'd like to add.

No I think you nailed it Michelle Nbn co selling and beat or the three big opportunities. So I think that I think you. Thank you. Thank you covered it thanks everybody.

Good chatting with you.

Okay that was our last question. Thanks again, everyone for your time today again, please reach out to IR. If you have any additional questions have a good weekend.

Ladies and gentlemen that will conclude today's call. Thank you all for joining you may now disconnect.

Please wait the conference will begin shortly.

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