Earnings call: TDS US Cellular reveals Q3 2024 financial growth

TDS US Cellular (NYSE: USM) reported its third-quarter 2024 earnings on October 24, 2024, with key financial results and strategic initiatives indicating a period of growth and strategic transactions. The company discussed its ongoing recovery efforts, improved financial metrics such as adjusted EBITDA, and the ongoing sale of wireless operations and spectrum to T-Mobile. Despite a decline in service revenues due to a smaller subscriber base, the company showcased a 3% improvement in adjusted EBITDA and a narrowed guidance for service revenues and adjusted EBITDA for 2024. Additionally, the earnings call covered the company’s fiber network expansion, broadband customer growth, and the upcoming launch of an MVNO with a national 5G partner.

Key Takeaways

• TDS US Cellular has seen improved financial performance with a strong profitability outlook.
• The company is in the process of selling wireless operations and spectrum to T-Mobile, expected to close in mid-2025.
• There is a 2% increase in postpaid ARPU and a 20,000 reduction in postpaid net losses year-over-year.
• A $136 million impairment loss on millimeter wave licenses was recorded.
• The company anticipates significant proceeds from the sale of spectrum licenses, which are expected to exceed their book value.
• TDS Telecom maintains its guidance and is focused on expanding its fiber network.

Company Outlook

• Service revenue guidance for 2024 has been narrowed to $2.95 billion to $3 billion.
• Adjusted EBITDA guidance for 2024 is between $970 million and $1.045 billion.
• The company aims to achieve 1.2 million marketable fiber addresses and has already fiber-enabled 50% of service addresses.

Bearish Highlights

• Service revenues declined by 2%, attributed to a decreasing subscriber base.
• Colocation growth on towers has slowed down.
• The company recorded a $136 million impairment on millimeter wave licenses.

Bullish Highlights

• Adjusted EBITDA improved by 3% due to effective cost management.
• The company reported a 1% increase in tower revenues and a 2% rise in total operating revenue.
• Free cash flow reached $331 million, allowing for significant debt repayment.

Misses

• The company experienced a decline in service revenues and a slower growth rate for broadband customer additions than anticipated.

Q&A Highlights

• Management discussed the impact of AI on operational efficiency and customer service.
• The company is in customer trials for its MVNO launch with NCTC, with a full commercial launch expected soon.
• TDS is considering expanding its tower portfolio but remains cautious due to high market valuations.

In summary, TDS US Cellular is navigating a period of strategic transactions and growth, with a focus on finalizing deals, optimizing costs, and expanding its fiber network. The company is poised to benefit from the upcoming transactions, including the sale of spectrum licenses and wireless operations to T-Mobile, and is actively working to enhance its broadband customer base and tower business. Despite some challenges, TDS US Cellular is optimistic about its future and continues to implement strategies to drive growth and profitability.

InvestingPro Insights

TDS US Cellular’s recent earnings report and strategic initiatives align with several key insights from InvestingPro. The company’s focus on fiber network expansion and improved financial metrics is reflected in its market performance. According to InvestingPro data, TDS has shown a strong return over the last month, with a 27.08% price total return, and an even more impressive 88.39% return over the past six months.

Despite the reported decline in service revenues, TDS’s financial position appears solid. An InvestingPro Tip indicates that the company’s liquid assets exceed short-term obligations, which supports its ability to invest in growth initiatives and manage the transition during the sale of wireless operations to T-Mobile.

The company’s dividend history is noteworthy, with an InvestingPro Tip highlighting that TDS has raised its dividend for 31 consecutive years and maintained dividend payments for 51 consecutive years. This demonstrates a commitment to shareholder returns, even as the company navigates strategic changes.

However, investors should note that TDS’s profitability remains a concern. An InvestingPro Tip suggests that analysts do not anticipate the company will be profitable this year, which is consistent with the reported impairment loss and ongoing operational adjustments.

For those interested in a deeper analysis, InvestingPro offers 11 additional tips for TDS, providing a more comprehensive view of the company’s financial health and market position.

Full transcript – Telephone and Data Systems Inc (TDS) Q3 2024:

Operator: Thank you for standing by. My name is Mandeep, and I will be your operator today. At this time, I would like to welcome everyone to the TDS US Cellular third quarter 2024 operating results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask questions during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star one again. 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 US Cellular websites. With me today in offering prepared comments are from TDS, Vicki Villacrez, Executive Vice President and Chief Financial Officer; from US Cellular, 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 US Cellular Investor Relations Website. Please see the websites for slides referred to on this call, including non-GAAP. 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 US Cellular’s wireless partnerships. As shown on Slide two, the information set forth in the presentation and discussed during this call contain statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the Safe Harbor paragraph 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 Villacrez: 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. I want to thank our teams, especially those 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 progress. As LT will cover in more detail, US Cellular 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 OneNet IT solutions closed in early September. The sale of OneNet is accretive to 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 US Cellular 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 that 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 executing 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 seventeen 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, Chris Bosfield, who is currently TDS Telecom’s Vice President, Financial Analysis and Strategic Planning, will be stepping into the role of Vice President of Finance and CFO at TDS Telecom. Michelle and Chris will be transitioning over the next month. I would also like to thank all of our associates for their hard work in these dynamic times.

LT Therivel: And now, LT, I will turn it over to you. Thanks, Vicki. Good morning, everyone. I want to just briefly echo Vicki’s sentiments regarding Hurricane Helane. 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 is going to take a long time for that area to fully recover, and everyone that is affected is certainly in our thoughts. With that, let’s pivot to the materials. I am going to take us to page five, 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. We believe we are 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 that 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 will be left with approximately seventy percent of our spectrum. We have been running a process to opportunistically monetize that spectrum. In October, we entered into agreements with multiple carriers to sell certain portions of those in exchange for aggregate proceeds of over $1 billion. Slide six shows our progress on the monetization and includes the sale of our 850 megahertz spectrum and a portion of our AWS and PCS spectrum to Verizon (NYSE:), 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 are also contingent on the close of our proposed transaction with T-Mobile. We are 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 impact 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 will not be able to share any additional details today. But I will provide more updates if they become available. I will talk about the quarter. The team remains highly focused on balancing improving subscriber momentum with delivering strong operational and financial performance. You can see that in our results. As discussed last quarter, earlier this year, we made promotional changes while executing cost reduction initiatives that have enabled us to maintain strong profitability. We continue to see the momentum from these changes in the third quarter, and we improved retail net losses by twenty thousand subscribers year over year. In addition, we have 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 on our existing customers through US Days and through other promotional investments has contributed to improved postpaid handset churn for each of the first three quarters of 2024. We plan on continuing to 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 gross adds increased. That allowed us to keep postpaid handset gross adds flat. This is particularly noteworthy in the context of our deal map. Postpaid handset net losses improved by ten thousand 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 have 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. I am really pleased with our improved subscriber momentum, particularly given that we have seen no letup in competitive intensity, whether from the large mobile network operators or the cable wireless players. Our postpaid ARPU also increased two percent, partially due to customers realizing the value of our higher-tier plans. We had fifty-four percent of our postpaid handset customers on the top two-tier plans compared to forty-six percent a year ago. 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. I am really proud of our efforts to balance subscriber growth with financial discipline. That has enabled us to raise our full-year profitability guidance this quarter. Turning to the network, we currently have over eighty percent of our data traffic already handled by sites that have been upgraded with low-band 5G. That provides strong 5G coverage in our footprint. 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 is going to enhance 5G speed and capacity. 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 US Cellular 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. As all these results demonstrate, we are executing on the strategic initiatives that we laid out for the business earlier this year, and I believe we are well-positioned heading into the busy holiday season. I want to thank the team for their hard work. I will now turn the call over to Doug.

Doug Chambers: Before discussing quarterly results, I want to provide some additional details on the proposed license sales transaction that LT previously highlighted and some broader impacts to our licensed portfolio. Subject to closing the pending T-Mobile transaction and regulatory approvals of the license transactions, we expect proceeds of just over $1.0 billion on the license sale transactions announced in October and highlighted on Slide six. 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 license 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 to $250 million for US Cellular and $150 million to $200 million for TDS. This is in addition to estimated cash taxes on the pending T-Mobile transaction we expect to be in the range of $225 million to $325 million for US Cellular 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, US Cellular was required to review and update the groupings of licenses or units of accounting for purposes of impairment testing. As a result of this review, our millimeter wave licenses in the 28, 37, 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, US Cellular estimated the fair value of these licenses to be less than their corresponding carrying value, and this was the primary driver of US Cellular 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 ten. Service revenues declined two percent, driven by declines in the average subscriber base, partially offset by a higher postpaid ARPU as LT discussed previously. System operations expense decreased two percent as cost optimization 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 three percent, and excluding the impact of strategic alternatives expenses included in this expense category, decreased five percent due to decreases in sales-related expenses, bad debt 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 one percent and an improvement in adjusted EBITDA, which incorporates the earnings from our equity method investments along with interest and dividend income of three percent. Slides eleven and twelve present the separate results for the wireless and tower segments. Tower revenue from third parties increased one percent in the third quarter as colocation 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 2,015 incremental towers for an initial term of fifteen 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 guidance is on slide thirteen. Given this late stage of the year, relative to the guidance we initially provided, we are narrowing the ranges of our guidance for service revenues to $2.95 billion to $3.0 billion and capital expenditures to $550 to $600 million. Further, we are narrowing and raising the ranges of our guidance for adjusted income before depreciation and amortization to $800 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 fifteen for our third-quarter highlights. This quarter, we reached an important milestone in that fifty percent of our service addresses are now served by fiber. We continue to grow our footprint, expanding service addresses nine percent year over year. The team delivered thirty-two thousand new marketable fiber addresses in the quarter, bringing our year-to-date total to eighty-seven thousand, making progress on our one hundred and twenty-five thousand marketable fiber service address goal for the year. Our fiber broadband strategy is continuing to deliver good results, contributing to a two percent increase in total operating revenue and a twenty-one percent increase in adjusted EBITDA for the quarter. We also grew total residential broadband connections four percent 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 and cable markets. Moving to slide sixteen, 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 market as well as fibering up our incumbent markets. We are also targeting sixty percent of our total service addresses to be served by fiber. We ended the quarter with fifty percent. And finally, we are expecting to offer speeds of one gig or higher to at least eighty percent of our footprint. We finished the quarter with seventy-four percent at gig speeds. These goals do not include fiber deployment that will be completed through the enhanced ACAM program. Therefore, these goals will increase once we add in eACAM fiber addresses. We are working closely with the FCC to finalize our precise service address obligations. Our original offer required building to 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 count. On slide seventeen, you can see we are growing our footprint with a nine percent 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 seventy-nine percent of our customers taking one hundred megabit per second or greater, up from seventy-five percent a year ago. We continue to increase the availability of gig-plus speeds, and customer take rates of these speeds are growing, with twenty percent of our customer base on one gig or higher at the end of the quarter. Turning to slide eighteen, we had 2,700 residential broadband net adds in the quarter, which contributed to four percent 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 have 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 forty percent 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 case expected, and we are 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 have 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 ACAM 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. To mitigate these impacts, we continue to promote our strong products, capable of delivering gig speed 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 five percent. This was due primarily to price increases. With increases in broadband connections and revenue per user, we saw five percent 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 four percent in the quarter as we continue to decommission our CLEC markets. Lastly, wholesale revenues decreased three percent as customers migrate to lower-cost products. On slide nineteen, you can see our quarterly performance. Operating revenues were up two percent 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 four percent decrease in cash expenses for the quarter, we are seeing nice growth in adjusted EBITDA, up twenty-one percent. Capital expenditures were $78 million in the quarter, down fifty-five percent from last year as planned. Slide twenty 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 am proud of what we have accomplished, and I believe TDS Telecom has a bright future and is in good hands with Chris Bosfield 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. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad, raise your hand, and join the queue. When you are called upon to ask your question and are listening, please ensure that your phone is not on mute. Again, press star one to join the queue.

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

Ric Prentiss: Hi. Good morning, everybody.

Vicki Villacrez: Morning, Rick.

Ric Prentiss: Hey. Couple questions. Thanks for the color on some of the cash taxes impacts. Wanted to probe a little further on the T-Mobile sale and the Verizon Spectrum sale. Are those fully using the net of NOLs and other tax shields? Or is that kind of the gross liabilities that you might be applying more shields to them?

Doug Chambers: Yeah. Rick, Doug here on that question. That is net of what we expect to use for both NOLs and for interest carried forward. And that is 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 US Cellular does.

Ric Prentiss: Makes sense. And on the Verizon spectrum sale, you mentioned that there will also be some fees and other items. For the non-cash tax items, is it probably a couple percent that we are taking that would be the fee-related items that we take the billion, a couple percent for fees, etcetera, and then the $200 to $250 million cash taxes. That is the way broadly to think about it?

Doug Chambers: Yeah. There are two things to think about with the gain. One is transaction fees, and the other thing that we have to account for is there is a lease of the spectrum that we offer to Verizon before the regulatory close of the Verizon deal. For accounting purposes, we need to ascribe value to these, and that is 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, you know, the T-Mobile deal closes, but then you cannot free up the Spectrum immediately?

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

Ric Prentiss: Okay. Because I would assume there has 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 time frame or something?

Doug Chambers: 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, the Verizon and the gain, the down imply, obviously, philosophical. Assuming things go through, what would the use of proceeds be? Is that, like, a special dividend thought? And if it is a special dividend thought, what are the thoughts of TDS? Is that to reduce leverage? Is that to start applying more capex? Philosophically knowing that we have got a lot of bridges to still cross.

Vicki Villacrez: Yeah. Good morning, Rick. Obviously, first and foremost, right now, we are focused on getting these transactions closed. And I would like to say and repeat we are 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 the use of proceeds to begin, and any use of proceeds would be the decision of the US Cellular 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 are 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 is 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 at the beginning of the year were worried would there be a, quote, super cycle? 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. Good morning, Rick. I guess I will give you two viewpoints on it. Let me start with the handset side. The jury is 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 is unclear to me if that is because consumers still see relatively little differentiation between next generations of devices, or if they are waiting for this most recent upgrade, in this case, from Apple (NASDAQ:), where some of the AI capabilities for the device are beginning to become unveiled. And I just think it is too early to tell. We certainly have not seen a super cycle to date. But I think it is too early. Right? A lot of the AI capabilities can now be delivered via software upgrades. So it is not going to require those customers who have already purchased a new device to go get a new one. And so we will see. Right? I have played around with some of the capabilities. They are pretty interesting. And I think that those and I think that they will mature over time. And so I think from a let’s call it a consumer-facing standpoint, AI truly changing the customer experience. It has not yet. But it is next. 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 prompts, next best offer, here’s what we suggest, here’s how we propose you answer that customer, here’s how you could do it more effectively, more efficiently. One of the things we are seeing is it is taking us a lot less time to ramp up care associates because of some of these AI capabilities. And so it 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 are already seeing a fair amount of benefit. And that is reflected in some cases in some of the year-over-year expense savings that we have seen. Some of those expense savings are driven by our care. They are doing a fantastic job managing expenses, and AI is helping there. So consumer side jury is still out. I am long-term bullish. Near-term operational efficiency, we are already seeing the benefit.

Ric Prentiss: Great. Thanks, everybody.

LT Therivel: You bet. Thanks, guys. Operator, next question.

Operator: Our next question comes from the line of Sebastian Pette with JPMorgan. Please go ahead.

Sebastian Pette: Hi. Thank you for taking the question. Just a quick clarification, housekeeping here. In terms of, in the TDS press release, I think you called out just agreements to sell high, like, and cable properties. Is that above and beyond what you have kind of already identified, or is there anything else perhaps in process there? In addition, you know, I guess, LT, thinking about the remainco tower portfolio pro forma for all the different transactions out there. I mean, as you think about it, do you see USM as a, you know, net acquirer perhaps of towers with the tower portfolio, you know, expanding over time, as that perhaps comes to the operating business, or is it more about, you know, increasing tendencies, preparing the business, you know, for further densification, some of the, you know, talent that you will see across the wireless ecosystem from there?

Michelle Brukwicki: Hi, Sebastiano. Yeah. The divestitures that Vicki mentioned, the non-strategic ILEC and cable divestitures are the same ones that we have just disclosed over the last few months. We had a couple of small Virginia ILECs that we are divesting. We announced that in the second quarter, and we also announced in the third quarter the sale of our tech cable properties. And so those are the ones that Vicki was 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 a bit about how we can see our current tower portfolio. Job one is to improve colocation 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 has driven some increase in colocation rates over time. As Doug mentioned, we are in a bit of a slowdown right now in the wireless industry in terms of capital spending. And, you know, we have reduced our capital guidance. A lot of our competitors have as well. That reflects then in terms of new colocation opportunities, new amendment opportunities, and so on into our tower business. So we have seen a slower rate of growth in the last year or two, but long run, we are still very bullish because our colocation rates are considerably below a lot of our competitors. We think there is opportunity. That tower portfolio is geographically relatively unique. Right? We have a small number of towers that are within a mile, within a mile and a half, within three, five miles of our towers. And so over time, as carriers densify, we see an opportunity to increase those colocation rates. And that is job one. A second question then when you think about our tower business, and I am getting to your question of when we look at acquisition opportunities, is you know, 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 have had with the wireless business and why we pursued the transaction with T-Mobile is because we really struggled to scale. Wireless is a national business. A lot of the spend is national, and we were disadvantaged against the larger players. That is 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. What that also then means is that if there is an opportunity, we can tuck other towers and other tower portfolios underneath that operating expense. And so, you know, the long answer to your question is yes. But it is yes, but. Yes. We would look at potential opportunities to expand that portfolio. Whether it is organic, right, 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, Chantel sold their towers, and these are some pretty rich valuations. And so we will be thoughtful as we approach these opportunities. And I think it is a business that we are long-term bullish on. We will look for opportunities to grow. But we will look for opportunities to grow in a way that makes sense and where we are not having to spend too much to acquire assets. Hopefully, that gives you a sense of how we are thinking about it.

Sebastian Pette: No. That is super helpful. We appreciate that. And then I guess one more question back to TDS. I know last quarter you announced an MVNO agreement. Right. Launch of an MVNO. As you are thinking about the space, obviously, tons of focus on convergence, tons of focus on fiber assets and, you know, where perhaps that could go over time. And given the company’s given TDS’s fiber efforts, you know, fiber roadmap and targets longer term. I guess number one, obviously, not to Yep. Maybe that makes sense to continue to operate on a standalone basis, but would you entertain, you know, unique perhaps, agreements with scaled wireless operators. There are some, you know, 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, a better way to ask a question, is the fact that you stood up the MVNO now preclude you from perhaps entering into, you know, agreements with perhaps scaled national wireless operators to, you know, combine your efforts for a converged bundle offer? Thank you.

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 have mentioned in the past, we are launching our MVNO through our participation in the NCTC. So we are 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 are in the process of getting that launch right now. We have been doing associate trials over the last couple of months, and we are 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 is how we are thinking about the MVNO, and we are very excited to get that launched in a bigger way. Hopefully coming up very soon.

Sebastian Pette: Thank you again.

Operator: Our next question comes from Sergei Dluzhevskiy with GAMCO Investors. Please go ahead.

Sergei Dluzhevskiy: Good morning.

Vicki Villacrez: Good morning.

Sergei Dluzhevskiy: Thanks 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 on new customer additions and amendments. But to the degree but I guess looking at the things 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 colocation ratio and also maybe your thoughts on what kind of third-party colocation ratio is realistic for your company on a medium-term subject, sir.

LT Therivel: Thanks, Sergei. So, I mean, a few thoughts on the slowdown and then, you know, why I do believe over time that we are going to see a pivot to that. You know, so I referenced the slowdown in capital spending. This is one area where it helps to be running a wireless business at the same time as you are running a tower business because you kind of get visibility into exactly what is driving trends. And for us, right, what is driving the trends is we have completed our coverage not completed, but we are well down the path of coverage built. Most of our investments are 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 paucity of spectrum. Right? There is not really a roadmap for carriers to get access to new spectrum anytime in the near future. Absent, of course, some spectrum that we are marketing. So we are kind of bullish on that piece of the equation. But broadly, right, if you are a carrier, the most obvious way to get access to spectrum is via spectrum online. The FCC does not have spectrum auction authority right now. There is a notional roadmap that the NTIA has put forward, and I commend them for doing it. That identifies bands for analysis, but we have been analyzing bands of the country for a long time. And we have not been able to take action. We have not taken action in granting the FCC spectrum authority back. And so which I had said publicly, I think is preposterous. And so right now, there is 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 recent announcements both in terms of their access to liquidity as well as the extension that they received from the FCC, I mean, their spectrum is not going to be on the market. So you do not see carriers with access to spectrum. If you do not 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 twenty to twenty-five percent more data every single year. That has not slowed, so the only way that you support that is with densification. And so over time, you are going to see more builds. I do think more of that will focus on small cells. On CRAN, it is going to be more on urban environments. But even in suburban and towards rural, you are going to have that same capacity problem, and so carriers are going to need to densify. And so they are going to need to get access to new towers and towers that are in places where they have not been before. And I do think that is going to drive, you know, attractive usage of our towers and demand for our towers. And so I am coming back around to your question of what do I think we are doing well? What I think we are 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 have 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 have worked hard to ensure that that is not the case. And so we have good agreements in place, whether they are the MLA with T-Mobile or similar agreements with Verizon or AT&T. I think we are well-positioned as a business to support that growth when it comes. The other thing I am pleased about is we are working on buying background leases. So not insignificant expense in the tower business over time is landlords, landlords, people who actually own the land, increasing the rates on their ground leases. And so we have had a robust program in place. We are 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 are turning this business into an attractive profit center. I think we are well-positioned to take advantage of that growth in the future. The interesting challenge for us over the next year, Sergei, is going to be we have to turn that into a truly independent company. Right? 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 is going to require some work in the next six or so months, six, nine months between now and close. And that is 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 are thinking macro about towers, but also micro where we see the opportunity.

Sergei 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 with Spentalia Communications. But US Cellular, obviously, has had 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 have 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 are 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 are not in any hurry to change direction with those partnerships. I mean, that being said, right, we are, you know, there is as part of this strategic review that we mentioned, I mean, we took a really comprehensive view across the business. And, you know, as you can see, from what we did with the wireless business, what we are doing with Spectrum, how we establish the tower business, there are not 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 will continue to do that moving forward. And so if there is an opportunity for a really good deal to monetize those partnerships, we would certainly be open to it, but we are not in any hurry. I think we are happy with how they are performing. We are happy with the relationship that we have within those partnerships. They are attractive financially. And at least right now, we have got plenty on our plate in terms of getting our wireless deal with T-Mobile done plus getting a lot of incremental spectrum monetized as well.

Sergei Dluzhevskiy: Got it. And my next question is for Michelle. TDS Telecom side. You provided distribution for your residential broadband customer base. In the slide deck, think about twenty percent are on the Gig plus, ten percent on six hundred meg and so on. How does the distribution differ for incoming 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, Sergei. Yeah. So for our incoming customers, I would say I think we are at about twenty percent is on gig service today for our whole base. But for incoming customers, we are at about forty percent coming in on gig service. So that is why you continue to see quarter over quarter, we keep moving our customers up that stack of speeds. And, you know, and that is also helping drive a bit of our ARPU increase. And, of course, improving, you know, the customer experience and meeting the customer demand for broadband usage.

Sergei Dluzhevskiy: Got it. Great. And my last question, going back to some of your comments about things that you are doing to improve broadband net additions, including either door-to-door Salesforce (NYSE:), 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 Salesforce that would improve conversion of your presence into paying customers?

Michelle Brukwicki: Yeah. So this is a huge focus of our organization. We have got lots of people working on this and focused on this. So, yeah, you know, last year, we turned up a lot of service addresses. We are turning up a lot this year as well. And so it is, you know, our top priority to sell into those addresses and get our broadband penetration up. So we did have 7,600 broadband net adds this quarter in our expansion markets. And that is fantastic that we are getting that because that is providing the growth in our broadband net adds in total. But it is coming in a little slower than we had expected. And what we are 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 have been working on that for the last few months. And as I mentioned, we are starting to see some really nice leading indicators, telling us that our efforts are working and that we are on the right track based on what we are seeing so far come through in October. So, you know, that is where our focus is right now is on getting those sales, you know, really ramped up and making sure we have got all the resources there that are required to do so.

Sergei Dluzhevskiy: Got it. Thank you.

Michelle Brukwicki: Thanks, Sergei. Thanks.

Operator: This concludes today’s Q&A session. I would 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: This concludes today’s call. You may now disconnect.

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