Title

Presentation

United States Cellular Corporation beats earnings expectations. Reported EPS is $0.26, expectations were $0.13.

Operator: Thank you for standing by. My name is Mandeep, and I’ll be your operator today. At this time, I’d like to welcome everyone to the TDS UScellular Third Quarter 2024 Operating Results Conference Call. All lines have been placed on me to prevent any background noise. After the speaker submits, there’ll be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Colleen Thompson, Vice President, Corporate Relations. You may begin.

Colleen Thompson: 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 UScellular websites. With me today and offering prepared comments are from TDS, Vicki Villacrez, Executive Vice President and Chief Financial Officer; from UScellular, LT Therivel, President and Chief Executive Officer; Doug Chambers, Executive Vice President, Chief Financial Officer and Treasurer; and from TDS Telecom, Michelle Brukwicki, Senior Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and UScellular 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 adjusted earnings before interest taxes, depreciation and amortization or EBITDA to highlight the contributions of UScellular’s Wireless partnerships. As shown on Slide 2, 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. And with that, I will now turn the call over to Vicki Villacrez.

Vicki?

Vicki Villacrez: Okay. Thank you, Colleen, and good morning, everyone. Before we begin, I do want to acknowledge the devastating impact of the recent hurricanes and the fires that swept through Ruidoso, New Mexico. Our hearts go out to all who were affected and suffered loss. And I want to thank our teams, especially who came together to offer support and assistance in all our affected communities when our customers and our communities needed us most. Thank you. As I turn to the results, I want to highlight that we had another quarter of execution on the priorities that we set out during the year. As LT will cover in more detail, UScellular has made nice progress on monetizing portions of the spectrum that were not included in the proposed transaction with T-Mobile.

These transactions really highlight the significant value and demand for these licenses. We have looked across our enterprise, entering into several other transactions that will help to focus our resources and further optimize our footprint. First, the sale of our OneNeck IT solutions closed in early September. The sale of OneNeck is a free cash flow. We also reached agreements on divestitures of certain non-strategic assets at TDS Telecom expected to close later this year. Turning to results, I am pleased with our third quarter performance. Both business units are focused on meeting their financial objectives, resulting in UScellular increasing its profitability outlook for adjusted EBITDA and adjusted OIBDA, and TDS Telecom reaffirming its guidance.

We ended the quarter in a solid cash and liquidity position. Sequentially, each quarter, our debt-to-EBITDA ratios have improved throughout 2024. Both businesses are continuing to generate positive free cash flow while continuing to invest in their networks. We are pleased to see the Fed cut interest rates in mid-September as this drives modestly lower interest costs for us. We will continue to manage our balance sheet through a combination of primarily long-dated debt maturities issued at historically low interest rates. We will continue to maintain reasonable leverage and sufficient liquidity, all of which provides flexibility as we go into the fourth quarter and look forward to execute on our operational objectives and longer-term strategic goals.

Before turning the call over, we recently announced that Michelle Brukwicki will be leaving TDS in December after 17 years with the enterprise. On behalf of the organization, I want to thank her for her leadership and wish her well in her next endeavors. With Michelle’s upcoming departure, Kris Bothfeld, who is currently TDS Telecom’s Vice President of Financial Analysis and Strategic Planning, will be stepping into the role of Vice President of Finance and CFO at TDS Telecom. Michelle and Kris will be transitioning over the next month. I’d also like to thank all of our associates for their hard work in these dynamic times. And now, LT, I’ll turn it over to you.

LT Therivel: Thanks, Vicki. Good morning, everyone. I want to just briefly echo Vicki’s sentiments regarding Hurricane Helene. I also want to pass along my sincere thanks to our network and operations teams that have worked tirelessly to restore our network and support our customers. Our operations have recovered, but it’s going to take a long time for that area to fully recover and everyone that’s affected is certainly in our thoughts. With that, let’s pivot to the materials. I’m going to take us to Page 5, and that covers some recent highlights. First, following our announcement back in May, the process to sell our Wireless operations and select spectrum to T-Mobile is proceeding as expected. As you may have seen, we filed our public interest statement with the FCC in September and we believe we’re on track for a mid-2025 closing.

We remain confident that the transaction with T-Mobile is the best long-term solution for our customers as it gives them the long-term benefits of greater scale and a more competitive network. The T-Mobile transaction will also provide us with an additional long-term Tower tenant and a strengthened Tower business. If you recall, we began reporting separate Wireless and Tower segment information last quarter, and we plan to continue to provide this detail going forward up to the expected close of the T-Mobile transaction. Also, as we talked about in our May announcement, after the proposed T-Mobile transaction, we’ll be left with approximately 70% of our spectrum. We’ve been running a process to opportunistically monetize that spectrum, and in October, we entered into agreements with multiple carriers to sell certain portions of those retained licenses in exchange for aggregate proceeds of over $1 billion.

Slide 6 shows our progress on the monetization and it includes the sale of our 850 megahertz spectrum and a portion of our AWS and PCS spectrum to Verizon, as well as the sale of small portions of our CBRS, C-Band, and 700 megahertz spectrum to two other smaller network mobile operators. These license sale transactions are subject to regulatory approval and they’re also contingent on the close of our proposed transaction with T-Mobile. We’re really pleased that we worked with multiple buyers, large and small, and that we were able to enter into agreements to realize substantial value for these licenses and that was well in excess of our book value. Doug will be providing more details on the expected gain and the tax impacts associated with these license transactions.

Now, we continue to work on opportunities for monetization of the remaining spectrum, but as this is an ongoing process, I won’t be able to share any additional details today, but I will provide more updates as they become available. Now, let’s talk about the quarter. The team remains highly focused on balancing improving subscriber momentum with delivering strong operational and financial performance, and you can see that in our results. As discussed last quarter, earlier this year, we made promotional changes that have improved our subscriber trajectory while executing cost reduction initiatives that have enabled us to maintain strong profitability. We’ve continued to see the momentum from these changes in the third quarter and we improved retail net losses by 20,000 subscribers year-over-year.

In addition, we’ve been committed to caring for our existing customers, and that includes conducting US Days multiple times throughout 2024, and as a reminder, US Days are periods where highly attractive promotional offers are made available to our existing customers. We believe this focus in our existing customers through US Days and through other promotional investments has contributed to improved post-pay handset churn for each of the first three quarters of 2024. We plan on continue [Technical Difficulty] reward our existing customers through US Days and other promotional offers in the fourth quarter. For the industry as a whole, while the pool of available subscribers was down again in the quarter on a year-over-year basis, our share of growth ads increased and that allowed us to keep postpaid handset growth ads flat.

This is particularly noteworthy in the context of our deal announcement. postpaid handset net losses improved by 10,000 year-over-year due to an improvement in churn, again, partially attributable to our focus on rewarding our existing customers with attractive promotions and continuing to deliver a strong network experience. We’ve also seen nice improvement in prepaid due to our competitive pricing and promotional strategies, including our compelling multi-line pricing, which began in May of this year, and I’m really pleased with our improved subscriber momentum, particularly given that we’ve seen no let-up in competitive intensity and that’s from either the large mobile network operators or the cable wireless players. Our postpaid ARPU also increased 2%, partially due to customers realizing the value of our higher-tier plans.

We had 54% of our postpaid handset customers on the top two tier plans compared to 46% a year ago, and given the cost pressures associated with those continued promotional investments, as well as inflation and the ongoing deployment of 5G, the teams have been doing an excellent job managing costs, with expenses down year-over-year in all major categories. And I’m really proud of our efforts to balance subscriber growth with financial discipline and that’s enabled us to raise our full year profitability guidance this quarter. Turning to the network, we currently have over 80% of our data traffic already handled by sites that have been upgraded with low-band 5G and that provides strong 5G coverage in our footprint. And so, consistent with our 5G network investments in 2024, future 5G network investments will predominantly be dedicated to the deployment of mid-band spectrum, and that’s going to enhance 5G speed and capacity.

And we noted previously that we expected capital expenditures for the full year to trend toward the lower end of our guidance range and this quarter, we lowered our capital guidance to reflect that. Before I turn the call over to Doug, I want to congratulate the team for UScellular being ranked number one in the North Central Region J.D. Power Study, reinforcing that our ongoing 5G network investments are resulting in a strong customer experience. And as all these results demonstrate, we’re executing on the strategic initiatives that we’ve laid out for the business earlier this year and I believe we’re well positioned heading into the busy holiday season. I want to thank the team for their hard work and I’ll now turn the call over to Doug.

Doug Chambers: Thanks, LT. Good morning. Before discussing quarterly results, I want to provide some additional details on the proposed licensed sales transaction that LT previously highlighted and some broader impacts to our license portfolio. Subject to closing the pending T-Mobile transaction and regulatory approvals of the license transactions, we expect proceeds at just over $0.0 billion on the licensed sale transactions announced in October, and highlighted on Slide 6. These licenses have a net book value of approximately $590 million, and after transaction fees and transaction accounting adjustments, we expect to recognize a gain on the licensed sales upon their respective close dates. Further, we expect total cash taxes related to these recently announced spectrum transactions to be in the range of $200 million to $250 million for UScellular and $150 million to $200 million for TDS.

This is in addition to estimated cash taxes on the pending T-Mobile transaction, which we expect to be in the range of $225 million to $325 million for UScellular and $150 million to $250 million for TDS. Additionally, as a result of our efforts to monetize spectrum assets not subject to the securities purchase agreement with T-Mobile, UScellular was required to review and update the groupings of licenses for units of accounting for purposes of impairment testing. As a result of this review, our millimeter wave licenses in the 28-gigahertz, 37-gigahertz and 39-gigahertz bands were identified as a separate unit of accounting. Due in part to industry-wide challenges related to operationalizing this millimeter wave spectrum, UScellular estimated the fair value of these licenses to be less than their corresponding carrying value, and this was the primary driver of UScellular recording a loss on impairment of licenses of $136 million or $102 million net of tax in the third quarter of 2024.

After recognition of the loss on impairment of licenses, the carrying value of our millimeter wave spectrum, not subject to the T-Mobile transaction is $161 million. Now let’s review the financial results starting on Slide 10. Service revenues declined 2% driven by declines in the average subscriber base, partially offset by a higher postpaid ARPU as LT discussed previously. System operations expense decreased 2% as cost optimization actions, including the shutdown of our CDMA network in the first quarter of 2024, more than offset increases that resulted from our ongoing mid-band 5G deployment. Further, selling general and administrative expenses decreased 3% and excluding the impact of strategic alternative expenses included in this expense category decreased 5% due to decreases in sales-related expenses, bad debts expense, as well as decreases across various other general and administrative categories due to cost optimization initiatives.

This led to an improvement in adjusted operating income before depreciation and amortization of 1% and an improvement in adjusted EBITDA, which incorporates the earnings from our equity method investments, along with interest and dividend income of 3%. Slides 11 and 12 present the separate results for the Wireless and Tower segment. Tower revenue from third parties increased 1% in the third quarter as co-location growth has slowed relative to recent years and was also impacted by defections, including Sprint-related defections. As we have discussed on prior calls, the Wireless industry has moderated capital expenditures beginning in 2023 and we experienced a corresponding slowdown in new tenant and amendment activity, which is impacting Tower revenue growth rates in 2024.

Again, we remain bullish on the long-term outlook for our Towers business and the long-term capacity needs of the industry that will drive demand for towers. Further, the pending transaction with T-Mobile, which is subject to regulatory approval and their commitment to lease 2015 incremental towers for an initial term of 15 years is expected to significantly increase third-party Tower revenues. Briefly on free cash flow, on a year-to-date basis through September 30th, due to improved profitability and moderated capital expenditures, we generated free cash flow of $331 million, a $94 million increase over the prior year. This has allowed us to repay $163 million of debt in the first nine months of 2024 and an additional $40 million of debt in October, which has further improved our leverage ratios.

Our 2024 financial guide is on Slide 13. Given this late stage of the year, relative to the guidance we initially issued in February 2024, we are narrowing the ranges of our guidance for service revenues to $2.95 billion to $3.0 billion and capital expenditures from $250 million to $600 million. Further, we are narrowing and raising the ranges of our guidance for adjusted income before depreciation and amortization to $800 million to $875 million and adjusted EBITDA to $970 million to $1.045 billion, reflecting the successful cost management results that we expect to achieve in the full year 2024. I will now turn the call over to Michelle Brukwicki.

Michelle Brukwicki: Thank you, Doug, and good morning, everyone. Let’s turn to Slide 15 for our third quarter highlight. This quarter, we reached an important milestone in that 50% of our service addresses are now served by fiber. We continue to grow our footprint, expanding service addresses 9% year-over-year. The team delivered 32,000 new marketable fiber addresses in the quarter, bringing our year-to-date total to 87,000, making progress on our 125,000 marketable fiber service address goal for the year. Our fiber broadband strategy is continuing to deliver good results, contributing to a 2% increase in total operating revenue and a 21% increase in adjusted EBITDA for the quarter. We also grew total residential broadband connections 4% year-over-year.

Our fiber strategy is extremely important. Fiber in our expansion and incumbent markets is providing growth, helping to overcome industry-wide competitive pressures facing our copper and cable markets. Moving to Slide 16, you can see where we are on our longer-term scorecard. We are targeting 1.2 million marketable fiber service addresses. We ended the quarter with 886,000. This reflects progress in growing fiber through our expansion markets, as well as fibering up our incumbent markets. We are also targeting 60% of our total service addresses to be served by fiber. We ended the quarter with 50%. And finally, we are expecting to offer speeds of 1-gig or higher to at least 80% of our footprint. We finished the quarter with 74% at gig speeds.

These goals do not include fiber deployments that will be completed through the enhanced A-CAM program. Therefore, these goals will increase once we add in E-ACAM fiber addresses. We’re working closely with the FCC to finalize our precise service address obligations. Our original offer required building to approximately 270,000 addresses, but we expect the final obligation to be lower. We will provide updated goals when we have more certainty on the final address reconciliation. On Slide 17, you can see we are growing our footprint, with a 9% increase in total service addresses year-over-year. As shown on the right side of the slide, we see increased demand for higher broadband speeds, with 79% of our customers taking 100 megabits per second or greater, up from 75% a year ago.

We continue to increase the availability of gig plus speeds and customer take rates of these speeds are growing, with 20% of our customer base on 1-gig or higher at the end of the quarter. Turning to Slide 18, we had 2,700 residential broadband net adds in the quarter, which contributed to 4% growth in residential broadband connections year-over-year. As we deliver new fiber service addresses, our teams are marketing and selling into those addresses. This quarter, we added 7,600 residential broadband net adds in our expansion markets. While this is providing growth, the pace of net adds has been slower than expected. We remain focused on driving up penetrations in our new expansion markets. Specifically, we’ve been working to increase the number of door-to-door sales reps, including augmenting our internal staff with external resources.

Leading indicators are showing improvement in our sales. Looking at the big picture, we are confident in the fundamentals of our fiber program and still targeting approximately 40% broadband penetration once markets hit a steady state. In addition, these markets are operating efficiently and contributing to both revenue and adjusted EBITDA growth. Our expansion markets are more cost-effective than our business cases expected and we’re seeing that fiber markets are the most efficient networks to run. Now, moving on to our incumbent ILEC markets. Where we have upgraded our network from copper to fiber, we’ve been able to effectively defend and compete. We had positive fiber broadband net adds in the quarter, which did not fully offset net losses in our copper areas.

With support from the enhanced A-CAM program, we will get even more fiber into our ILEC over the next few years, which will help us defend these markets. In our cable markets, consistent with the industry, we experienced net broadband losses, primarily due to LECs upgrading and fiber overbuilders increasing their presence in our markets. To mitigate these impacts, we continue to promote our strong product, capable of delivering gig speeds using DOCSIS 3.1. We also strategically overbuild our networks with fiber in certain areas, and we put fiber in all new greenfield builds. In addition, we implement strategies to attract and save customers to mitigate market-specific competitive challenges. Now, a couple more comments on net adds. We continued to see impacts from two discrete items that we also mentioned in the second quarter.

First, we experienced additional ACP disconnects this quarter, 600 in ILEC and 500 in cable. Second, we had an additional 1,000 cable net losses this quarter due to the wildfire in Ruidoso, New Mexico, that occurred in June. Now, turning to the middle graph, average residential revenue per connection increased 5%. This was due primarily to price increases. With increases in broadband connections and revenue per user, we saw 5% growth in residential revenues. Specifically, expansion markets delivered $29 million of residential revenues in the quarter, compared to $20 million a year ago. As expected, commercial revenues decreased 4% in the quarter as we continue to decommission our CLEC markets. Lastly, wholesale revenues decreased 3% as customers migrate to lower-cost products.

On Slide 19, you can see our quarterly performance. Operating revenues were up 2% in the quarter as the growth in residential revenues was partially offset by the decline in commercial and wholesale revenues. As our fiber connections and revenues grow, coupled with a 4% decrease in cash expenses for the quarter, we are seeing nice growth in adjusted EBITDA, up 21%. Capital expenditures were $78 million in the quarter, down 55% from last year, as planned. Slide 20 shows our 2024 guidance, which is unchanged from last quarter. In closing, I want to thank all of the TDS telecom associates for their energy and passion as they care for our customers and communities. As Vicki mentioned, this is my last earnings call at TDS. It has been my privilege to work with so many talented people during my time here.

Thank you all. I’m proud of what we have accomplished and I believe TDS telecom has a bright future and is in good hands with Kris Bothfeld as CFO. I will now turn the call back over to Colleen.

Colleen Thompson: Okay, Operator. We are now ready for the first question.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Ric Prentiss with Raymond James. Please go ahead.

Ric Prentiss: Thanks. Good morning, everybody.

Vicki Villacrez: Good morning, Ric.

Michelle Brukwicki: Good morning.

Ric Prentiss: Thanks. A couple questions. Thanks for the color on some of the cash taxes impacts. I wanted to probe a little further on the T-Mobile sale and the Verizon Spectrum sale. Are those fully using are they net of NOLs and other tax yields or is that kind of the gross liabilities that you might be applying more yields to them?

Doug Chambers: Yeah. Ric, Doug here on that question, that is net of what we expect to use for both NOLs and for interest carry forward. That’s the reason why the TDS cash taxes are estimated to be lower because they have more of those attributes, NOLs and interest carry forwards than UScellular does.

Ric Prentiss: Makes sense. And on the Verizon Spectrum sale, you mentioned that there also would be some fees and other items. For the non-cash tax items, is it probably a couple [Audio Gap]

Doug Chambers: … and that’s also going to impact the eventual gain that we recognize upon close of that transaction?

Ric Prentiss: Okay. That makes sense. And so the lease before closing, is that implying that the T-Mobile deal closes, but then you can’t free up the spectrum immediately?

Doug Chambers: Well, it implies that the T-Mobile deal may close and we may not have regulatory approval for the Verizon Spectrum deal.

Ric Prentiss: Okay. Because I would assume there’s got to be some integration time for T-Mobile to kind of migrate the customers off of the USM network over to the T-Mobile network. Is that like a year’s timeframe or something?

Doug Chambers: That’s correct. There is a spectrum lease for up to a year after the close of the T-Mobile deal where T-Mobile may lease most of our spectrum for that period of time.

Ric Prentiss: Makes sense. Okay. And then when you think about the spectrum sale to Verizon and the gain that that would imply, obviously philosophical, assuming things go through, what would the use of proceeds would be? Is that like a special dividend thought, and if it is special dividend thought, what are the thoughts of TDS? Is that to reduce leverage? Is that to start applying more capex? Just philosophically knowing that we’ve got a lot of bridges to still cross.

Vicki Villacrez: Yeah. Good morning, Ric. Obviously, first and foremost, right now we’re focused on getting these transactions closed. And I would like to say and repeat, we’re very pleased with the value these transactions are unlocking for our shareholders and so our top priority is to get to a successful close. When we get closer to that closing, I expect discussions on use of proceeds to begin and any use of proceeds would be the decision of the UScellular Board of Directors. If there is a special dividend and TDS got its share, it would be an opportunity for TDS to do a number of things that would include paying down — the potential to pay down debt, improve leverage, help the advancement and potential acceleration of the fiber deployment program that we have in place at TDS Telecom, as we continue to be bullish on that and really pleased with the results that we’re seeing across our markets, as well as the expansion into new markets.

And TDS may look at returning value to shareholders. So more to come. It’s early. Again, our focus is on getting close.

Ric Prentiss: Makes sense. One other more long-term question for LT on the Wireless side. A lot of people beginning the year were worried, would there be a quote super cycle or was the iPhone refresh going to drive competitive changes on loss on equipment or what would happen in the switcher pool? How are you viewing AI broadly from a Wireless operator standpoint of what it could help you do, but also what it might do as far as on the handset side?

LT Therivel: Yeah. Hi, Ric. I guess I’ll give you two viewpoints on it. Let me start with the handset side. The jury’s still completely out, right? So we, like every other operator, actually saw a decline in upgrade rates. People are hanging on their devices for longer. And it’s unclear to me if that is because their consumers still see relatively little differentiation between next-generations of devices or if they’re waiting for this most recent upgrade, in this case from Apple, where some of the AI capabilities for the device are beginning to kind of become unveiled and I just think it’s too early to tell. We certainly have not seen a super cycle to-date, but I think it’s too early, right? This is — a lot of the AI capabilities can now be delivered via software upgrades.

So it’s not going to require those customers who have already purchased a new device to go get a new one and so we’ll see, right? I’ve played around with some of the capabilities. They’re pretty interesting and I think that they’ll mature over time. And so I think from a, let’s call it a consumer facing standpoint, AI truly changing the customer experience, it hasn’t yet, but it may and I think it displays a lot of promise. Where we are seeing impact is on the cost side of our operations. And so I see a lot of promise in AI, for example, in care, being able to provide a better customer experience in our care centers, not necessarily replacing humans, but providing them with better prompt, next best offer. Here’s what we suggest.

Here’s how we propose you inspect the customer. Here’s how you can do it more effectively, more efficiently. One of the things we’re seeing is it’s taking us a lot less time to ramp up care associates because of some of these AI capabilities. And so that can help us from attrition. It can help us from training. It can help us be more efficient. Over time, I expect that same level of efficiency to translate into our stores, into our digital experience. And so from a cost perspective, I do think we’re already seeing a fair amount of benefit. And that’s reflected in some cases in some of the year-over-year expense savings that we’ve seen. A lot of those expense savings are driven by our care team. They’re doing a fantastic job managing expenses and AI is helping there.

So consumer side, jury’s still out. I’m long-term bullish. Near-term operational efficiency, we’re already seeing the benefits of it.

Ric Prentiss: Great. Thanks, everybody.

LT Therivel: You bet.

Vicki Villacrez: Thanks, Ric. Operator, next question.

Operator: Our next question comes from the line of Sebastiano Petti with J.P. Morgan. Please go ahead.

Sebastiano Petti: Hi. Thank you for taking the question. Just a quick clarification, housekeeping here. In the TDS press release, I think you called out disagreements to sell ILEC and cable properties. Is that above and beyond what you’ve already identified or is there anything else perhaps in process there? In addition, I guess LT, thinking about the RemainCo [ph] Tower portfolio pro forma for all the different transactions out there, as you think about it, do you see USM as a net acquirer perhaps of towers or the Tower portfolio expanding over time as that perhaps comes to the operating business or is it more about increasing tenancies, preparing the business for further densification in some of the towers that you’ll see across the Wireless ecosystem from there?

LT Therivel: Thanks, Sebastiano.

Michelle Brukwicki: Thanks, Sebastiano.

LT Therivel: Michelle, do you want to tackle the first one?

Michelle Brukwicki: Yeah. Hi, Sebastiano. Yeah. The divestitures that Vicki mentioned, the non-strategic ILEC and cable divestitures are the same ones that we have disclosed over the last few months. We had a couple of small Virginia ILEC s that we are divesting. We announced that in the second quarter and we also announced in the third quarter the sale of our Texas cable properties. And those are the [Technical Difficulty] referring to and those are the ones that we expect to close here very, very soon in the fourth quarter.

LT Therivel: Let me tackle question number two. So let me talk just a bit about kind of how we see our current Tower portfolio. Job one is to improve co-location rates on the assets we have today. So one of the interesting things about our portfolio is that we only really started treating it as a revenue center, as a profit center a few years ago and that’s driven some increase in co-location rates over time. As Doug mentioned, we’re in a bit of a slowdown right now in the Wireless industry in terms of capital spending and we’ve reduced our capital guidance, a lot of our competitors have as well. That reflects then in terms of new co-location opportunities, new amendment opportunities and so on into our Tower business and so we have seen a slower rate of growth in the last year or two.

But long run, we’re still very bullish because our co-location rates are considerably below a lot of our competitors. We think there’s opportunity. That Tower portfolio is geographically relatively unique. Like, we have a small number of towers that are within a 1 mile, within a 1.5 mile, within 3 miles, 5 miles of our towers. And so over time, as carriers densify, we see an opportunity to increase those co-location rates and that’s job one. A second question then when you think about our Tower business, and I’m getting to your question of when we look at acquisition opportunities, is this business — is this a business that operates at scale? And my perspective on the Tower business is, yes. One of the issues that we’ve had with the Wireless business and why we, no small reason why we pursued the transaction with T-Mobile is because we really struggled with scale.

Wireless is a national business. A lot of the spend is national and we were disadvantaged against the larger players. That’s not the case in towers. Towers, you can operate much more locally on a much more granular level. And we do think that we are at a scale where we can operate our Tower portfolio efficiently over time and what that also then means is that if there’s an opportunity, we can talk other towers and other tower portfolios underneath that operating expense. And so, the long answer to your question is yes, but it’s yes, but yes, we would look at potential opportunities to expand that portfolio, whether it’s organic, building new towers or inorganic acquiring portfolios. But valuations are pretty rich right now, right? You look at the latest transaction between Verizon and Vertical Bridge, Shentel sold their towers, and these are some pretty rich valuations.

And so, we’ll be thoughtful as we approach these opportunities. And I think it’s a business that we’re long-term bullish on. We’ll look for opportunities to grow, but we’ll look for opportunities to grow in a way that makes sense and where we’re not having to spend too much to acquire assets. Hopefully, that gives you a sense about how we’re thinking about it.

Sebastiano Petti: No. That’s super helpful. We appreciate that. And then I guess one more question back to TDS, I know, last quarter you announced an MVNO agreement or launch of an MVNO. As you’re thinking about the space, obviously, tons of focus on convergence, tons of focus on fiber assets and where perhaps that could go over time. And given the company’s, given TDS’s fiber efforts, fiber roadmap and targets longer term, number one, obviously, maybe that makes sense to continue to operate on a standalone basis. But would you entertain unique, perhaps, agreements with scaled wireless operators? There are some regional ILEC assets. I think Windstream and AT&T, for example, have an agreement. But is that within perhaps the longer-term roadmap, perhaps, although you have stood up the MVNO?

I mean, I guess the better way to ask the question, is the fact that you stood up the MVNO now preclude you from perhaps entering into agreements with, perhaps, scaled national wireless operators to combine your efforts for a converged bundle offer? Thanks.

Michelle Brukwicki: Hi, Sebastiano. So, yeah, let me talk a little bit about our MVNO. We are in the process of getting that all rolled out. And as we’ve mentioned in the past, we are launching our MVNO through our participation in the NCTC. So we’re part of that industry cooperative. And they have partnered with very strong partners that are coming together and integrating and offering that MVNO opportunity to companies that participate in NCTC like us and so we are taking advantage of that. And the Wireless partner that NCTC is working with is a national 5G player. So we do have that available to us through the NCTC-MVNO arrangement. And we’re in the process of getting that launched right now. We’ve been doing associate trials over the last couple months and we’re now in customer trials.

And as soon as we are comfortable with how those trials are going, then we will go to a full commercial launch and eventually get that launched across our entire footprint. So that’s how we’re thinking about the MVNO and we’re very excited to get that launched in a bigger way, hopefully coming up very soon.

Sebastiano Petti: Thank you again.

Operator: Our next question comes from Sergey Dluzhevskiy with Gamco Investors. Please go ahead.

Sergey Dluzhevskiy: Good morning, guys.

Vicki Villacrez: Good morning.

Sergey Dluzhevskiy: Thank you for taking the questions. My first question is for LT on the Tower business. So I understand that obviously the industry is in a slower CapEx cycle and that impacts new customer additions and amendments. But to the degree, but I guess looking at the thing that you can control, I guess what is working well to the degree that things are moving along and what still needs to be improved in order for you to increase your co-location ratio? And also maybe your thoughts on what kind of third-party co-location ratio is realistic for your company on a medium-term trajectory?

LT Therivel: Yeah. Thanks, Sergey. So, I mean, a few thoughts on the slowdown and then why I do believe over time that we’re going to see a pivot to that. So I referenced the slowdown in capital spending. It’s — this is one area where it’s helpful to be running a Wireless business at the same time that you’re running a Tower business because you kind of get visibility into exactly what’s driving the trends. And for us, right, what’s driving the trends is we’ve completed our coverage, not completed, but we’re well down the path of our coverage build, most of our investments going into capacity. And the next big round of investment is going to be triggered by one of two things, right? The first will be 6G and any densification or new spectrum that needs to be brought to bear in order to enable the 6G build.

But the second, interestingly enough, is going to be driven, I believe, by a paucity of spectrum, right? There’s not really a roadmap for carriers to get access to new spectrum anytime in the near future. Absent, of course, some spectrum that we’re marketing. So we do — we’re kind of bullish on that piece of the equation. But broadly, right, if you’re a carrier, the most obvious way to get access to spectrum is via a spectrum auction. The FCC doesn’t have spectrum auction authority right now. There’s a notional roadmap that the NDIA has put forward, and I commend them for doing it, that identifies bands for analysis. But we’ve been analyzing bands as a country for a long time and we haven’t been able to take action. We haven’t taken action in granting the FCC spectrum authority back and so, which I’ve said publicly, I think, is preposterous.

And so right now, there’s no roadmap for new spectrum to come to bear from the government. In the private market, I think there was some speculation that DISH might be in the market selling some spectrum. But I think the recent announcements, both in terms of their access to liquidity, as well as the extension that they received from the FCC, means their spectrum is not going to be on the market. So you don’t see carriers with access to spectrum. And if you don’t have access to new spectrum, how do you satisfy increases in capacity? Because whether we bring new spectrum to bear as an industry or not, users are still going to use between 20% to 25% more data every single year. That has not slowed and so the only way that you support that is with densification.

And so over time, you’re going to see more builds. I do think more of that will focus on small cells, on C-RAN. It’s going to be more in urban environments. But even in suburban and towards rural, you’re going to have that same capacity problem and so carriers are going to need to densify. And so they’re going to need to get access to new towers and towers that are in places where they haven’t been before and I do think that’s going to drive attractive usage of our towers and demand for our towers. And so I’m coming back around to your question of, what do I think we’re doing well? What I think we’re doing well right now is establishing agreements and establishing relationships with the carriers, where I do believe we are a tower provider of choice for carriers.

I’ve been in the business for a long time and there is usually a bit of a contentious relationship between tower providers and carriers. And we’ve worked hard to ensure that that is not the case. And so we have good agreements in place, whether the MLA with T-Mobile or similar agreements with Verizon or AT&T. I think we’re well positioned as a business to support that growth when it comes. The other thing I’m pleased about is we are working on buying back ground leases. So not insignificant expense in the Tower business over time is landlords, land lords, people who actually own the land, increasing the rates on their ground leases. And so we’ve had a robust program in place and we’re actually putting that program a bit more on steroids going into next year to try to buy back some of these ground leases and get those expenses into a more manageable situation in the future.

And so I think we’re turning this business into an attractive profit center. I think we’re well positioned to take advantage of that growth in the future. And the interesting challenge for us over the next year, Sergey, is going to be, we have to turn that into a truly independent company. We need to be in a position when the T-Mobile deal closes where that Tower business can completely stand on its own. It certainly is already standing on its own operationally. But from an overhead perspective, from a systems perspective and so on, that’s going to require some work in the next six or so months, six months, nine months between now and close and that’s where another portion of our operational focus will be. So sorry for the lengthy diatribe there, but hopefully that gives you a sense about how we’re thinking macro about towers, but also micro where we see the opportunity.

Sergey Dluzhevskiy: Got it. Thank you. My second question is in regards to Wireless partnerships. So Verizon has been buying in minority stakes in their partnerships over the past few years. Obviously, one of the larger transactions there was, it’s been part of their communications. But your seller obviously has an even larger minority interest in terms of size in the LA market. So if you could maybe share with us your latest thinking on the partnership interest and what could move you closer to monetizing those assets?

LT Therivel: Well, we’ve had a couple of things on our plate over the last couple of quarters when it comes to strategic deals and monetizing assets. Certainly getting those deals done, not just getting them structured, but also getting them over the goal line remains our focus. We’re pleased with those partnerships. They generate attractive cash flow. That cash flow has helped our Wireless business. It helps us continue to pay down debt. And so we’re not in any hurry to change direction with those partnerships. I mean, that being said, right? We are — there is — as part of this strategic review that we mentioned, we took a really comprehensive view across the business. And as you can see from what we did with the Wireless business, what we’re doing with spectrum, how we established the Tower business, there aren’t any sacred cows and we did take a really comprehensive look, short-term and long-term, about what we wanted the enterprise to look like and we’ll continue to do that moving forward.

And so if there’s an opportunity for a really good deal to monetize those partnerships, we’d certainly be open to it. But we’re not in any hurry. I think it’s where we’re happy with how they’re performing. We’re happy with the relationship that we have within those partnerships. They’re attractive financially. And at least right now, we’ve got plenty on our plate in terms of getting our Wireless up [Technical Difficulty] plus getting a lot of incremental spectrum monetized as well.

Sergey Dluzhevskiy: Got it. And my next question is for Michelle on TDS Telecom’s side. You provided big distribution for your residential broadband customer base. In the slide deck, I think about 20% are on gig plus, 10% on 600 meg and so on. How does the distribution differ for incoming customers? So this is your entire base, but how would it look for your incoming customers, maybe for the last quarter or year-to-date?

Michelle Brukwicki: Yeah. Hi, Sergey. Yeah. So for our incoming customers, I would say, I think, we’re at about 20% is on gig service today for our whole base. But for incoming customers, we’re at about 40% coming in on gig service. So that’s why you continue to see quarter-over-quarter, we keep moving our customers up that stack of speeds and that’s also helping drive a bit of our ARPU increase. And of course, improving the customer experience and meeting the customer demand for broadband usage.

Sergey Dluzhevskiy: Got it. Great. And my last question, going back to some of your comments about things that you are doing to improve broadband conditions, including, I guess, door-to-door sales force that you have in your markets. Maybe if you could provide more color on that front and also what are the things that you are pursuing to, in addition to, I guess, door-to-door sales force that would improve conversion of your patents into paying customers over the next six months to 12 months?

Michelle Brukwicki: Yeah. So we — this is a huge focus of our organization. We’ve got lots of people working on this and focused on this. So, yeah, last year we turned up a lot of service addresses, we’re turning up a lot this year as well and so it is our top priority to sell into those addresses and get our broadband penetration up. And so we did have 7,600 broadband net adds this quarter in our expansion markets and that’s fantastic that we’re getting that because that’s providing the growth in our broadband net adds in total. But it is coming in a little bit slower than we had expected. And what we’re finding is that we need to enhance our door-to-door sales representatives and get more people out there selling.

About half of our sales come from door-to-door and we just needed more resources out there. And so we’ve been working on that for the last few months, and as I mentioned, we’re starting to see some really nice leading indicators telling us that our efforts are working and that we’re on the right track based on what we’re seeing so far come through in October. So that’s where our focus is right now is on getting those sales really ramped up and making sure we’ve got all of the resources there that are required to do so.

Sergey Dluzhevskiy: Got it. Thank you.

LT Therivel: Thanks, Sergey.

Michelle Brukwicki: Thanks.

Operator: This concludes today’s Q&A session. I’d like to now turn the call back over to Colleen Thompson for closing remarks.

Colleen Thompson: Okay. Thanks, everyone, for all your time today. Please reach out to Investor Relations with any additional questions and have a great weekend. Operator, we can sign off now.

Operator: Thank you. This concludes today’s call. You may now disconnect.