Q2 2023 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 second quarter 2023 operating results call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session if you'd like to ask a question.
During this time simply press the star 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 sections of the Tds and U S cellular websites.
With me today and offering prepared comments are from Tds Democrats Executive Vice President and Chief Financial Officer from U S. Cellular LTE terrible President and Chief Executive Officer, Doug Chambers, Executive Vice President and Chief Financial Officer and Treasurer.
Eric Jr, Senior Vice President and Chief Marketing Officer, Austin, Summerford, Chico's strategy partnerships empowered 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 website.
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.
And adjusted earnings before interest taxes, depreciation and amortization or EBITDA to highlight the contributions of U S wireless partnerships.
Tds and U S cellular filed their SEC forms 8-K, including the press releases and our 10-Qs earlier this morning.
As shown on slide two the information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties. Please.
Please review the Safe Harbor paragraph in our press releases and the extended version included in our SEC filings.
I will now turn the call over to Vicki Democrats Vicky.
Alright, Thank you Colin and good morning, everyone.
Before we get into the details for the quarter.
I wanted to take a moment to acknowledge this morning's announcement.
The board of directors of Tds and U S cellular have each decided to initiate a process.
Laura strategic alternative for U S cellular.
The comprehensive process, we will explore a range of strategic alternatives focused on the best interest of shareholders.
Both Tds and the independent directors of U S cellular have retained financial and legal advisors in connection with their review.
There is no deadline or definitive timetable set for completion of the strategic review and there can be no assurance regarding the result or outcome of this review.
Tds and U S cellular do not intend to comment further on the strategic review process and we will make further announcements as appropriate.
We do not plan to answer any questions regarding the prop the review process on this call today.
Let me emphasize that.
We all remain committed to executing the strategic priorities that we set forth at the beginning of the year.
Which L T dog.
And the rest of the team and Michelle will speak to next.
With that let's get into the details of the corners.
As you saw from our press release.
We're halfway through the year, we continue to execute on our multiyear strategy.
While focusing intensely on cost containment U S. Cellular has begun deploying mid band <unk> spectrum, and Tds Telecom is making solid progress on its fiber program and expansion into new markets.
At the end of the second quarter Tds and U S. Cellular combined have over $1 1 billion in available sources of liquidity, including cash revolver as AIP and capacity on our repurchase agreement to help fund our businesses as needed.
I also wanted to highlight that as expected U S cellular paid down to $150 million in debt during the second quarter, and then paid down another $100 million in July .
We continue to manage the balance sheet by keeping short term maturities to a minimum and this higher interest rate environment.
As a reminder, over 60% of our debt, including our preferred are very long dated maturities or indefinite in the case of the preferreds.
Briefly on guidance U S cellular tightened most of it ranges increased the midpoint of its adjusted EBITDA guidance, and then modestly reduced our service revenue guidance.
Reflecting an aggressive competitive environment.
Tds telecom due to tight cost controls increased its profitability ranges.
They also reduce the midpoint of their capital expenditure guidance.
While still committed to its fiber service address delivery target.
We have the entire organization focused on cost efficiencies and we will carefully paced our investments in order to preserve capital and navigate the current economic environment.
And now I'll turn over the call to LTE to update you on U S cellular results L. P.
Thank you Vicky and good morning, everybody, let's turn to slide five we remain committed to our strategic priorities that we laid out for all of you at the beginning of the year.
Top priority remains improving our subscriber trajectory and although we were not satisfied with our postpaid gross adds in the quarter.
Been making notable strides in churn reduction very encouraged with that improvement.
Over the past year, we've worked to improve our in contract rate is currently at 62%.
That's a big factor insurance and as a reminder, customers that are in contract are much less likely to churn than customers who are out of contract.
We're also being really targeted with promotions.
Seeing varying campaigns in from time to time on a regional basis.
Those us to focus on subscriber growth and a more fiscally disciplined way.
For instance, while flat rate is being offered footprint wide other offers particularly focusing on upgrades are more targeted.
We're seeing steady adoption of our flat rate plans. So we have tailored to our various regions.
As a reminder, while flat rate plans generate lower ARPA within traditional postpaid pricing plans.
<unk> on these flat rate plans are generally not eligible for higher promotional discounts.
In addition, about a third of our flat rate customers are on the top two pricing tiers.
If you combine the promotional benefit and the higher pricing tier selection on.
On average the flat rate plans have similar economics to our traditional plans over time.
And notwithstanding the increasing penetration of flat rate plans, which is currently at 11%.
Our postpaid <unk> is still growing year over year.
Team is doing a really nice job of moving customers up the right stack and providing them with the enhanced value of our higher tiered plans.
And then on cost in this current inflationary environment I'm really pleased with the way we're managing our costs.
As I mentioned last quarter, we made some difficult head count decisions.
With run rate expenses, Doug will give you some additional details and we'll talk more about expenses in a few minutes.
Turning to fixed wireless we have seen continued momentum with that product. We ended the quarter with 96000 customers up 66% year over year.
July we surpassed 101000 customers, it's a milestone for this product.
And remember these results are all on low band spectrum.
We're currently deploying mid band spectrum.
Stock offering fixed wireless over mid band later this month.
We expect that this will help us provide an even better experience for our customers.
Enable us to compete even more aggressively in areas with cable competition in Italy.
Help us maintain our sales momentum for the coming quarters.
Speaking briefly on the network, we are deploying our mid band spectrum in the $3 four five band we've done this in parts of Illinois, and Iowa, Wisconsin Main, Missouri, Nebraska, Oklahoma, Oregon, Virginia.
And we have a one touch tower approach, where we're hanging C band radios at the same time as we hang the radios that manage a $3 five spectrum.
So it will be ready to go on air with C band with that spectrum clears later this year.
We expect the addition of mid band through this multiyear deployment will further improve our competitiveness.
By enhancing both our fixed wireless and our mobility experience.
Briefly on the bead program, we know fixed wireless broadband is a fantastic solution to help bridge the digital divide.
Stances, where fiber is too expensive or maybe it's impractical to deploy.
Based on our conversations with state officials, we believe fixed wireless can play a meaningful role in connecting the Unserved and underserved in America.
We believe we're well positioned to participate in that space.
We expect to be able to compete for about $75 billion in broadband funding.
That will help us subsidize tower builds that aren't economical otherwise.
As we've mentioned earlier, Eric Chair in Austin, Summerford have joined us here today.
I've asked him to give brief updates on key initiatives in the business.
First as I mentioned in the first quarter, we launched our new brand campaign earlier this year.
We've seen some really positive results. We believe are going to help us drive future customer growth I'd ask Eric to share some of our early results with you today.
And often leads our tower business as you know towers are very valuable assets, we've seen really nice growth in tower revenues over the last couple of years.
I'll provide a bit more detail on our tower strategy and our path forward.
Before turning the call over I want to highlight we recently issued our first social impact reported that U S. Cellular.
Report highlights our commitment to building better communities in the areas that we serve.
And our passion for connecting our customers to what matters most.
I encourage you to check it out on our website.
And as always I also want to thank all of our associates, whose dedication to serving our customers and supporting our communities.
With that I'll turn the call over to Eric who is going to provide an update on our brand initiatives.
Thanks Al good.
Good morning, Phil.
<unk> mentioned, our mission at U S cellular to connect people to what matters most.
It means helping them to build genuine connections versus constant connections that can distract in demand.
Because of this mission, we decided to adapt our brand strategy by taking on an issue people care about.
One of the steps that we're taking to attempt to improve our subscriber trajectory I wanted to share a few of the details with you today.
As context for the campaign, while people love their devices. They are struggling with their relationship with technology.
And 47% of Americans say, they are addicted to their phones.
So we position the brand to address an opportunity to create a healthy relationship with technology, we launched a new marketing campaign in the first quarter of <unk>.
First initiative was the phones down for five challenge.
We ask people to take a break from their devices for five minutes five hours were five days to focus on connecting what matters most.
<unk> launched a signature service helped us mode, which uses functionality in the handset operating system to help people set up their devices for connection rather than a distraction.
The campaign has been impactful and is generating a high level of interest and engagement.
We've already earned 358 million impressions to date. This is more than three times the number of people watched the Super Bowl.
Further LTE was just on good morning America last week discussing the resources, we're making available to families trying to navigate this issue.
Additionally, the campaign is helping to improve net promoter score or NPS.
NPS measures, how likely a carrier's respective customers are to recommend our services as of June 2023, our NPS is higher and the big three carriers and our footprint.
You'll see on the slide we've gone from fourth place to first place and likelihood to recommend by current customers.
As you can see on slide eight the campaign is resonating and while it's still early we are already seeing impact with both current and non customers as those who are aware of our campaign score significantly higher on several key brand dimensions and those that are not aware.
For our current customers. We believe this campaign has contributed to year over year reductions in churn we've seen the last two quarters that the campaign has been in market.
For non customers. We believe these results are a leading indicator it will increase both familiarity and consideration of the U S cellular brand.
Will help drive improved gross outperformance as more people become aware of the campaign.
Overall, we are very pleased with the early results of this campaign and we're optimistic it will help us drive future customer growth.
I'll now turn the call over to Austin, Summerford will update you on towers Austin.
Thanks, Eric and good morning, everyone.
As you already know U S. Cellular is uniquely positioned as both a wireless operator and based on the number of towers. We own also the fifth largest tower company in the U S. We've driven strong growth in our third party tower revenue over the last few years, while continuing to support U S Cellular's network.
And I believe we have further room for growth.
Including the U S cellular network our tower tenancy ratio is currently only one dot five five.
Up from $1 four for just two years ago and.
And we have room for further growth before we reach a tenancy ratio in excess of two as we see with the large U S tower companies.
Our towers are also well positioned geographically.
About 30% of them do not have a competing tower within a two mile radius.
Additionally, we have a well diversified customer base spread across the states in which U S failure operates and.
And we arent heavily weighted towards any single carrier.
And the revenues generated by this business, resulting high contribution margins as there is relatively little incremental cost to adding a co locators equipment to one of our sites.
In addition, we can offer an array of services the traditional tower companies can't such as backhaul power and shelter space.
And while these ancillary services aren't currently large revenue generators.
The ability to offer them differentiates us from the competition.
Moving on our results as you can see on slide 10, the business delivered another strong quarter with $25 million of third party revenue, which represents 10% growth versus the same quarter in 2022.
With that said and consistent with commentary from the publicly traded tower companies, we have seen a slowdown of new tenant and amendment activity. This year.
In addition, we've seen an uptick in terminations from T mobile as a result of their network integration efforts.
Combination of these two factors has led to a slowdown in sequential growth and for the remainder of the year, we are expecting growth to decline from the double digit growth. We achieved this quarter. However, we have a significant backlog of applications for both new tenancies and amendments and we remain optimistic that leasing activity will pick up again in the coming.
I will now turn the call over to Doug who will take you through the financials in more detail.
Thanks, Austin Good morning, let's start with a review of customer results on slide 11.
Postpaid handset gross additions decreased by 11000, largely due to continued aggression and the competitive environment as well as decline in the pool of available customers.
We still have postpaid net handset losses, but this improved year over year by 2000 as the decline in gross additions was offset by improvements in voluntary churn partially as a result of more customers in contract driven by our attractive upgrade offers in the second half of 2022 and first quarter of 2012.
Three.
Moving to slide 12, prepaid gross additions declined 6000, and net prepaid additions decreased 4000.
In terms of gross additions the overall pool of available customers declined year over year, which we believe is partially driven by competitively priced postpaid offerings, including our own flat rate plans.
Now, let's turn to the financial results starting on slide 13.
Total operating revenues for the second quarter decreased 7% from the prior year with service revenues declining 3%.
The primary drivers of lower service revenues are declines in the subscriber base and roaming revenue.
Inbound roaming revenue declined 55% due primarily to lower negotiated rates with other carriers, which also has the impact of decreasing our roaming expense.
On the positive side as <unk> mentioned, despite the increase in flat rate penetration of our subscriber base. We continued to see growth in <unk> as we continue to improve our plan and product offering mix as a result of customer adoption of our higher value higher tier plans.
As of the end of the quarter, 44% of our postpaid handset customers are on these higher tier plans.
To help mitigate the impact of promotional cost and service revenue and <unk>, which increased year over year.
Equipment sales revenues decreased by 20%, mainly due to decline in upgrade volumes.
Next let's turn to our quarterly operating performance shown on slide 14.
For this discussion I will refer to adjusted operating income before depreciation and amortization as adjusted operating income.
As I noted total operating revenues declined 7% cash expenses declined 6% and were flat excluding cost of equipment sold.
This result was achieved despite the inflationary environment and increased operating costs related to our ongoing <unk> rollout and is attributable to our strong focus on controlling costs, including our multiyear cost optimization program.
As a reminder, in May we announced a reduction in staffing, which should positively impact cash expenses in 2023 and beyond.
We estimate full year run rate savings related to this action of approximately $45 million, which we expect to fully realize in 2024.
Wrapping up this slide adjusted operating income declined 10% and adjusted EBITDA, which incorporates the earnings from our equity method investments along with interest and dividend income decreased 8%.
Capital expenditures have decreased 47%, mainly driven by timing of expenditures in <unk> phase III relative to the prior year as we continued to invest in our multiyear <unk> mid band deployment, while prudently managing our free cash flow.
Moving to slide 15, I will cover our guidance for the full year 2023.
We believe that we are on track to deliver on our profitability and capital expended chart capital expenditure targets that we presented to you in February and accordingly, the mid points of adjusted operating income and capital expenditures remained unchanged.
We're lowering the midpoint for service revenues by $50 million, primarily as a result of our subscriber loss trajectory.
As a result of our ongoing expense discipline and management, we are able to maintain our adjusted operating income guidance. Despite this decline in our service revenue guidance.
In addition, we are increasing the midpoint of adjusted EBITDA by $25 million.
Lastly, now that we are more than halfway through 2023, and given our plans for the remainder of the year. We are tightening the ranges of service revenues adjusted operating income and adjusted EBITDA are.
Our guidance for capital expenditures remains unchanged as we are executing our <unk> mid band deployment as planned I will now turn the call over to Michelle for a quickie Michelle.
Thank you, Doug and good morning, everyone.
I am pleased to report on Tds Telecom second quarter results and highlight that we are on track to meet the goals we laid out earlier this year.
Before getting into the quarterly results I'm excited to share that the federal ATM program has been extended.
This is fantastic news for our company.
We will provide an additional 10 years of revenue support through 2038 in return for us delivering increased speeds of 100 megabits down in 'twenty up to our AGM addresses.
While important program details remain under review we believe this is a favorable outcome for these customers and provides the fastest path for Tds telecom to take fiber deeper into our communities.
Now, let's jump into our quarterly results starting on slide 17.
Here you can see our strategic areas of focus we expect investments in these strategic priorities to drive profitability and improved returns over time, ultimately strengthening Tds telecoms financial and market position.
Moving to slide 18.
Let me update you on our progress towards achieving our longer term goals.
We are delivering fiber service addresses in line with our expected cadence.
We deployed 41000 marketable service addresses in the quarter, bringing our total to 66000 this year through June .
Similar to past years, we expect to see a ramp up in delivery in the back half of the year.
That ramp up started in July as we added over 20000 addresses.
We are well positioned towards hitting our goal of 175000 service addresses for the year.
Longer term, we are targeting $1 2 million marketable fiber service addresses by 2026, we.
Ended the quarter with 648000, so we're making good progress towards achieving that goal.
We are also targeting 60% of our total service addresses to be served by fiber by 2026, and we ended the quarter with 41%.
This reflects progress in growing fiber through our expansion markets as well as firing up our incumbent market.
Specifically by 2026, we plan to serve half of our ILEC addresses with fiber at the end of the quarter, 38% of our ILEC with fibered up.
And finally, we're expecting to offer speeds of one gig or higher to at least 80% of our footprint by 2026, we finished the quarter with 68% at gig speeds.
We continue to believe these targets are achievable notwithstanding the recent reduction in our capital expenditures that I'll discuss in a moment.
We are pleased with the pace of our fiber builds and with our fiber expansion results so far.
Continues to validate our long term business case expectations of low to mid double digit returns.
We're successfully navigating challenges in getting our builds completed and with about 100 communities in various stages of development, we can shift and pace our construction when necessary.
On Slide 19, you can see that we are growing our footprint with a 9% growth in total service addresses year over year.
Shown on the graph on the right, we see increasing demand for higher broadband speeds with 74% of our customers, taking 100, megabits or greater up from 68% a year ago.
We continue to increase the availability of gig plus speeds, we're now even offering eight gig speeds in certain markets.
Customer take rates of these fees are growing with 13% of our customer base on one gig or higher at the end of the quarter.
Our broadband investments are driving positive results, including an 8% increase in total residential broadband revenue.
As shown on slide 20, we experienced a 5% increase year over year and total broadband residential connections.
Average residential revenue per connection was up 4% due to price increases and overall product mix, partially offset by promotions.
As shown in the chart on the right. We also had a 4% increase in residential revenues across all of our markets and this was partially offset by a decrease in commercial and wholesale revenues.
Expansion market residential revenues were up to $18 million in the quarter. This aligns with our expectations of steady revenue growth. Following the timing of service address delivery as penetration ramps in these new markets.
Residential wireline incumbent in cable revenues increased year over year due to price increases and growth in broadband connections, partially offset by promotional activity and a decline in video and voice connections.
Commercial revenues decreased 10% in the quarter, primarily driven by lower CLEC connections.
And lastly, wholesale revenues decreased 4% for the quarter, primarily due to lower special access revenue.
On slide 21, we can see that total revenues increased 1% for the quarter.
Cash expenses increased 5% in the quarter, mainly due to our growing fiber program.
As a reminder, cost to support launching our fiber expansion markets include direct costs, such as sales marketing real estate and technicians. In addition to shared services.
These costs are incurred upfront and prior to generating revenues.
As we expected the increased cash expenses resulted in a decline in adjusted EBITDA of 9% for the quarter.
Capital expenditures of $132 million were up from the prior year due to increased investment in fiber deployments this year.
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.
Slide 22 shows our revised 2023 guidance.
We are forecasting total telecom revenues of 1.03 to 1.06 billion, which is unchanged from last quarter.
Adjusted EBITDA is now expected to be between 270 and $300 million in 2023, an increase from our previous range.
Adjusted EBITDA reflects our fiber program upfront spending along with our focus on cost management.
Disciplined spending across the organization is driving the increase in our guidance range.
It's important to note that by the end of this year, we expect almost all of our fiber expansion markets to be initially launched.
As our fiber program builds mature and we increased our broadband penetration we expect the pressure on adjusted EBITDA to lessen.
We are also now modestly reducing our capital expenditure guidance range to be between 475% and $525 million.
We do not expect us to impact our fiber service address delivery goal this year.
Going forward, we will size and pace of the timing of our capital spending commensurate with our financing plans, which we expect will result in a reduction in capital expenditures in the near term, while still expecting to achieve our 2026 fiber program goals.
Before signing off I want to briefly reiterate our response to recent media accounts related to led covered cables.
We currently estimate that we have approximately 10 miles of leg cable almost all of it and buried conduit. This is a very small percentage of our entire network.
We're continuing our assessment and we'll work with the industry to determine next steps.
I also want to thank the team for all of their hard work it takes alignment and dedication across the entire organization to execute on our strategy to each one of our associates is contributing to Tds telecom success.
And now I'll turn the call back over to Colleen.
Okay before we open up for questions I do want to remind everyone that our focus today is on the quarter and we will not be taking questions related to the review of strategic alternatives.
Operator, we're ready for the first question.
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 will take our first question from Rick Prentiss with Raymond James Your line is open.
Thanks, Good morning, everybody.
Can you hear me Okay. Good morning, good morning, Rick.
Yeah, great. Thanks.
Glad you guys are looking at the strategic alternative review.
Appreciate that.
My question is not about that but related.
First question.
Regardless of the outcome of the strategic review.
Have you thought about any further about breaking out the tower segment as a separate standalone business and.
And working a contract between <unk>.
Tower Company as you mentioned the fifth largest tower company in.
In the wireless company <unk>.
Regardless of what the outcome is that would seem to make kind of sense. So maybe the first question is outside of the strategic review any updated thoughts on creating a tower segment with anchor rent.
Hey, Rick good morning.
So thank you for the question.
The way that we're approaching this right now.
As we as you can tell from both my comments as well as Austin's comments, we see a lot of value in that tower business.
Our co location rate is below that of the major providers, we see a lot of long term growth in that asset, even though we have seen a bit of a slowdown here more recently.
We do plan over time to share some more information on that segment as we go. So for example, you heard a little bit of new information from Austin today.
Around the tower business.
The specific question of carving it out we're treating it as a separate business that's something that we're evaluating we're not in a position to comment on that today, but we do plan on providing incremental details about the business over time.
Hopefully that.
Someone that answers your question, even if it doesn't fully answer it.
Brian I know is Dodge in that line there about ask you about the strategic review, but I thought it was a fair way you did it was very elegant I thought it was extremely diligent.
The second question, obviously gross adds it's been a tough gross AD environment out there for the industry.
Any update as far as what you saw in July as far as churn and gross adds particularly on postpaid phones.
Yeah, Rick good morning.
We can't comment fully on on Q3, I'd say, we've seen a fairly similar trajectory in July that we saw in Q2, so no drastic changes so far.
Okay and last one for me.
The bright spot is the fixed wireless business.
And this is just the low band you're going to be rolling out the mid band and C band clears in your area in December .
Should we think about.
You're addressing that.
The total addressable market.
How many households, maybe have you already got deployed with C band, even though it's not limit what are your plans. Some of your larger peers have kind of laid out some targets and have made great progress towards those targets with even more markets open. So I'm just trying to help us understand the sizing of the addressable market is fixed wireless where youre at and kind of where your plan.
So I'll give I'll have Doug kind of give you some of the specifics and then I'm actually going to have Mike talk a little bit about what we're doing to address capacity and fixed wireless because that's a that's a fundamental is that thats, a fundamental driver of addressable market and addressable market isn't.
Just where you can have a signal reach addressable market is where you can have a signal reach with the capacity necessary to provide a high quality experience. So Doug maybe I can ask you to tackle the first got it and then like you.
Sure and as a reminder, wrecked our total adjustable market for fixed wireless today over low band 13 million homes in our footprint.
When we look at our multiyear mid band rollout, we expect mid band to get to $4 million to $5 million of those homes and that may be adjusted over time, but we're pretty excited about.
Where that's going.
Hey, Randy it's Mike. Thanks for the question. So we're just now starting to bring up.
Our spectrum.
And that immediately gives us the capacity increase to the low band service that LT mentioned at the same time, we're prepping the radios and the equipment. So that we can activate <unk>.
C band towards the end of the year, so that almost doubles our capacity to support the growth, but in addition to that were.
Working with our marketing team to find the right balance of pro install external antennas versus and Sterling internal antennas and glass Mount antennas getting that mix right. Further extends our capacity and then there's things we're working with our vendors on to one lower the cost to add capacity.
As well as feature enabled mats that are specific to SWA capacity. So right now we're not concerned about capacity, we're managing it like we manage capacity on our mobility product.
Great that's helpful. Thanks.
Thanks, Mike next question.
Okay.
Next we'll go to Phil Cusick with Jpmorgan. Your line is open.
When Phil your line is open.
Maybe on mute.
Yeah.
Yeah.
Go ahead Phil.
Okay. Okay, we will move to the next question next we'll go to Simon Flannery with Morgan Stanley .
Great. Thank you very much.
On the build out of the mid band spectrum. It sounds like you're hanging two different antennas for the Dod's spectrum in the C band with the one touch.
Any line of sight to an integrated antenna.
Yeah.
How that might be helpful in terms of.
Efficiency of use and I guess the related question maybe for Austin is.
I appreciate the color on the competitive positioning of the towers, how do we think about capacity you have one five tenants right. Now are most of these towers can you go to two three or four tenants over time any color on that would be great.
So thank you Simon I'll have Mike touch on the single enclosure single radio. It's certainly something we've been working closely with our partners on developing so Mike maybe you could give a little bit of color on that yeah, Hi, Samad. Thanks for the question, we're working with both our vendors on that product and.
You don't want to commit to commit them to a date publicly but we feel it's pretty close and we will integrate that into our deployment plans. So that we could take advantage of it just as soon as it's available.
Thank you Simon.
This is Austin on your second question, Yes, our towers do you have incremental capacity.
We believe the vast majority of them have incremental capacity from where they are today. In addition, there is always the option to invest through a structural modification to add capacity to the sites as well. So we feel good about where we are there.
Great.
Quantification of how long and how much the remaining T mobile churn is.
I'm not going to provide any more detail right now.
Okay understood. Thank you.
Yeah.
Okay next we'll go to Michael Rollins with Citi. Your line is open.
Thanks, and good morning.
You look at the totality.
Wireless performance.
There are geographies or segments, where you're seeing material growth.
And subscriptions postpaid phone subscription and revenue.
Versus maybe other areas or products or verticals that it's tougher such that when we look at the total portfolio performance, it's actually not a fair representation of what you may be experiencing when you go one or two levels deeper.
Hey, Mike it's good to hear from you.
I would answer that question a few different ways.
Certainly when you look at different.
Our products inside of our business, we're seeing certain areas of the business with really attractive growth. So we certainly talked about fixed wireless and.
And a fair amount of detail, that's one area, where we're seeing a lot of growth in.
Our business segment, our Iot business is up substantively year over year, we're seeing really good growth on.
On the private networking space.
And by the way the private networking space. It's also helping us pull through professional services and so that's an attractive growth area for us.
We've talked mostly on fixed wireless you've talked mostly about the.
The consumer side, but we're actually seeing some really attractive growth on the business side as well.
Just recently launched a fail over product.
We're seeing really nice growth on and if you are trying to follow that.
The growth in our financial statements some of the fair amount of the growth on the business side doesn't actually show up in our subscriber count because it's being sold through indirect channels and so it will just show up in our revenue counts.
So there's certainly are some some substantive bright spots.
From a geographical perspective, what I would highlight is that 50% of our footprint does not have cable competition in it.
We are seeing increased pricing competition from cable.
And where we see that it creates incremental competitive challenges.
So as you would expect where we don't see that increased competitive challenge cables, we see some we see some better subscriber results. So it's different ways of kind of getting at your question, we certainly have plenty of attractive pockets.
But.
Broadly across the business, we do see growth that gross add challenges.
So just point of churn right.
Alright.
Last year, we were quite aggressive with our existing same as new.
Promotions.
Those.
Moved our in contract rate from mid fifties 50, 758%.
Into the low 60 percentile of in contract customers and where we have those customers and contracts, we see far better churn profiles.
Profiles. So it certainly is not.
Ubiquitous performance completely across all our products all our footprint, you've got highest and lowest cost you would expect with that gives you a sense Mike.
Thanks, So I just had a follow up question so.
Recognize you can't speak to the strategic review of U S cellular per your prior comments.
But the language was very specific.
Yes he is.
Also performing a strategic review of U S. Cellular so should investors take that to mean that Tds as a company.
Expect to still.
Be an outstanding independent company, regardless of what happens to U S cellular.
Sure.
Tds also the future of Tds get incorporated into this review for U S cellular.
Yeah, Yeah, it's incredibly incredibly elegant way to try to get me to talk about.
About the release, but I'll just point you back to the 13D I think the language in it.
Is about I think it is clear as we're going to be and I think it probably provides as many details as we're going to at this point. So I would just refer I would reference you back to that document for that question.
Thank you.
Thanks, Mike.
Thank you as a reminder, its star one if you have a question next we'll go to Sergey <unk> with Gamco investors.
Good morning, guys. Thank you for taking the questions.
My first question is around.
<unk> business and enterprise side.
Obviously, it's a gross of article.
Let's see.
<unk> for the company I guess as you look over the last 12 months.
I guess what has been the largest that humans on that front and also what are your expectations for this vertical over the next 12 to 18 months.
What would you consider a success and at what point do you expect this business to make a more meaningful contribution to <unk> results.
Hey, good morning Sergey.
So business is an interesting space for us because.
<unk>.
It took a step back from our business and I will answer your question, but if you take a step back just from our business and you look at five G.
With the exception of fixed wireless.
The emerging use cases that are going to monetize the investments that the industry has made in <unk>.
Kris speed better latency those use cases are increasingly going to be on the enterprise side.
And so whether it is connected manufacturing whether it is connected health.
Most of those initial use cases digital twins.
Those are going to leverage enterprise.
So we made a pretty substantive investment enterprise distribution. So that we can be ready for that and we're seeing the pay offs from that investment and distribution.
Particularly in areas that I mentioned before I think private networking think Iot and all points, particularly you asked for a specific accomplishment I'm, particularly pleased with what we've been able to do in the utilities space. So we signed a variety of different private networking deals with utilities.
Helping them manage their networks more securely providing them with more control smart metering solutions.
This is a particularly interesting space because they don't necessarily utilities don't necessarily compete against one another and so a solution that we provide to one utility.
They can talk about with others and so we've actually seen pretty significant momentum in that space and I expect that to continue so if I were to point at one thing it would be it would be utilities.
More broadly.
Think enterprises, where youre going to see those five used <unk> use cases emerge and so we've leaned into enterprise many of our competitors have actually pulled back and I believe that positions us well for the future.
The challenge of course is that there has been a.
Long I would call it a hangover from Covid disconnects, particularly in the education space.
So what occurred during Covid is still a lot of money flowed from the government into school systems to enable them to connect students teachers administrators remote.
Those that created a lot of connections for U S cellular for the industry as a whole.
That funding has dried up and so what you've seen is you've seen school districts pulling back on some of those connections.
That they previously had funding for.
So the overall momentum and the trajectory that we're seeing in the business is attractive even though the subscriber counts appear challenged because of those EU disconnects. So getting to the final question that you asked what's the metric that we're going to focus on the metric I'm focused on is revenue.
I expect to see revenue growth in that segment notwithstanding some of these lower <unk> disconnects I expect that the Iot revenues that were seeing the private networking that we're seeing should continue to increase revenue in that space.
I'm optimistic that we're gonna be driving that in the coming quarters.
Great.
My other question is around partnerships.
And the network sharing.
Because I think.
Number of times, you talked about the comp and exploring potential for more robust partnerships around infrastructure and more specifically and Thats, Berkshire, obviously, we see a lot of network sharing deals in Europe , Latin America, and North America, maybe they're not as frequently but I think the bell and Telus in Canada.
Have a very robust partnership so my question is.
Uh huh.
If you could provide an update as.
As far as your efforts as long as that front and also more broadly is there a way for you to better align itself. There's a lot of the national providers in a value enhancing way.
Using network sharing or other partnerships and how are you guys going forward.
Thanks, Sergey so the interesting thing about network sharing is that it's it's a single term that covers an incredibly broad spectrum of possible.
Methods partnerships arrangements, whatever you want to call is roaming.
As a form of network sharing.
And so clearly we engage in network sharing partnerships with our roaming partners as do the other carriers.
We are in consistent communication with other folks in the industry to explore alternatives.
I'll go back to comments I made on these calls in the past, which is that I simply don't think that it makes economic sense to build for <unk>.
Five duplicative five G.
Our six G networks in Rural America.
We feel we have a fantastic set of assets in rural America, whether its the spectrum that we own the network that Mike has built out the towers that Austin is operating.
We see opportunities to use that an accretive fashion and so I would go back to some of the comments Austin made about some of the network equipment and network elements that we're actually offering up to people that co located on our towers and we have the opportunity to offer shelter space.
We're generators or even discussing backhaul sharing.
Those are the elements of network sharing that we're in the middle of doing that we've actually we've actually signed some agreements there theyre very small right. It's on a tower by tower basis, sometimes.
Another way of thinking about network sharing.
So I think the conversations are ongoing.
We're seeing continued interest in for example that tower sharing construct.
Beyond that I, probably can't comment on anything specific.
Got it.
And.
My last question is.
Sure.
Michelle.
So honestly.
Your comments about the.
Hey, Kim.
On a.
Program expansion.
And it seems you have a positive view of the program could you maybe provide more color about towards this could mean for Tds going.
Going forward towards the implications are for the <unk>.
Vacations, our full potential.
Revenue and award that pretentious under this program going forward.
Yeah. Thank you Sergei yes, so the a cam program is seen as a benefit to Tds Telecom were very excited about this we've been working with the FCC for a long time.
I'm trying to get this enhanced program over the finish line and so we're just very pleased that that has happened.
There are a lot of program details that are still being reviewed we know the high level.
As I mentioned this program is going to extend the revenue support for an additional 10 years. So the current ATM program was scheduled to go through 2028. This will take the revenue support out through 2038 and in exchange for that though we have to deliver higher speed.
Leads to all of the addresses that are eligible for the ATM program. So that means that we have to get speeds of at least 100, Megabits down and 20 Megabits up that is the same requirement as part of the <unk> program and those bills have to be done it's our understanding by the end of 2028. So that also the builds.
On the ATM program will align with the build timeline that we're expecting for the <unk> program.
That's what we know right now where we will be working closely with the FCC to get our company's specific offers an obligation requirements and this will happen over the next couple of months and then that will allow us to do a little bit more evaluation and be able to talk more specifically about exactly what it means for us but in general.
This is a program that's already existing we've been part of it for many years.
A wonderful thing for Tds telecom and for our customers and by keeping this program going and extending it. We really think this is going to be the best way for us to get to work and start to serve those customers in the most rural parts of our markets with higher speeds as quickly as possible.
Got it thank you.
Thanks Sergei.
Good afternoon.
And next we'll go to Phil Cusick with J P. Morgan. Your line is now opened.
Hi, guys, sorry, if I missed a little bit of the call, but I'm trying to catch up on the transcript.
I Wonder L T you've been at U S. Cellular for three years and can you talk about the success of the shifting pricing and promotion strategies in that time.
Youre in contract mix as you said is up nicely and churn is down but it seems like you continue to struggle with gross ads and despite wireless growing.
Better over the last few years than we'd expected.
So can you just talk about sort of where we are in that go to market strategy and what the company is doing to try and push that and as you look at the budget and plan for this year.
Their performance is sort of deferred and the drivers of the guide down. Thank you.
Hey, Bill good to hear your voice.
Or.
When we think about our pricing and promotional structures.
You don't do so with subscribers.
In a in a vacuum.
We look at how you're doing it from a subscriber perspective.
We've talked from the very beginning that we were trying to create both with our pricing and promotional structures, but also with our regionalization efforts, where we can test and trial different construct.
We wanted to have a strategy to properly balanced subscriber results with financial results and so when I look at that balance given the context, the overarching context of the industry.
Intense competitive environment intense pricing pressures across the industry.
And if I look at it within that context.
I'm quite pleased about the balance we've been able to strike.
The gross add performance is not where I want it to be.
We've been fairly public about that and its in every statement that we've put out there and I'll continue to say it.
I would like to be able to drive stronger levels of gross add performance. However, the level of investments that we feel like it would take at this point to really meaningfully bend the curve on gross adds there is not a prudent investment that we think is worth doing I would contrast that with chart.
We made a substantive investment in churn last year with our existing siem as new plants getting folks back under contract.
There's a fair amount of money that we spent behind that.
However, you see the benefits that we're that we're gaining this year and year over year churn improvement.
No.
Surely on a subscriber gross add perspective still a lot of work to do.
In the balance between subscriber results in financial results.
Youll see from our guidance, we slightly expanded.
Our operating cash flow guidance. This year, we're trying we're trying to strike that correct balance between subscriber results in financial results and from that perspective, I'm pleased and I think the team is executing well.
And is it gross adds has been the driver of the slower revenue and the downgrade in the guide today.
Yes, I mentioned on the call till its volumes and mostly gross add driven on postpaid and to a lesser extent prepaid.
Okay. If I can ask one more can you remind us of your ownership of the Verizon La asset and how much cash that is brought in in the last year. Thank you.
Well, our total distributions last year 2022 full year were $145 million that includes L. A along with <unk>.
Another partnership investments, we expect that to go up slightly this year L. A is about 40% of that total.
And what's the I assume that there's essentially no tax basis on those investments.
Well its low and by the way La is distribution is going up this year.
As a result of significant capital expenditures in the fourth quarter of 2022. So we do expect that to go up and yes, the tax basis as well.
Thanks, guys.
Okay.
Okay. 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 have a great weekend.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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