Greetings and welcome to the TDS and U.S. Cellular Second Quarter Operating Results Conference call. [Operator Instructions] A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jane McCahon, Vice President of Corporate Relations for TDS. Thank you, miss. You may begin.

Thank you, Dan. Good morning and thank you for joining us. I want to make you all aware of the quarterly conference call presentation we have prepared to accompany our comments this morning which you can find on the Investor Relations pages of the TDS and US Cellular websites. With me today and offering prepared comments from TDS, Ken Meyers, Executive Vice President and CFO; from U.S. Cellular, Mary Dillon, President and Chief Executive Officer; Steve Campbell, Executive Vice President and CFO, and from TDS Telecom, Vicki Villacrez, Vice President of Finance and Chief Financial Officer; and Kevin Hess, Senior VP, Government and Regulatory Affairs. This call is being simultaneously webcast on the Investor Relation sections of both the TDS and U.S. Cellular websites. Please see the websites for slides referred to on this call including non-GAAP reconciliations. The information set forth in the presentations and discussed during this call contains forward-looking statements about expected future results and financial results that are forward looking and subject to risks and uncertainties. Please review the Safe Harbor paragraph in our releases and the more extended versions that will be included in our SEC filings. Shortly after we released our earnings results this morning and before this call, TDS and U.S. Cellular filed SEC Form 8-K reports, including the press releases we issued this morning. Both companies plan to file their SEC Form 10-Q later this afternoon. On September 27, 2012 the FCC plans to conduct auction 901, a single round field bid reverse auction to award up to $300 million in one-time mobility fund Phase I support to successful bidders that commit to provide 3G or better wireless service in areas designated as under served by the FCC. U.S. Cellular has filed short form applications with the FCC for each of the states in which we have ETC status, which preserves our ability to participate in the auction if we so choose. FCC anti-collusion rules place certain restrictions on business communications and disclosures by participants in an FCC auction. So we will refrain from discussing any incremental [ph] topics relative to that auction. Please keep in mind that TDS has an open-door policy. So if you are in the Chicago area and would like to meet with members of management from TDS Corporate, U.S. Cellular or TDS Telecom, the Investor Relations team will try to accommodate you, calendars permitting. Now, I'd like to turn the call over to Ken Meyers.

Thank you, Jane. Good morning everyone. As you will hear from the team we've a mixed quarter with some good progress on several fronts including the level of post paid and pre-paid gross adds and an another HMS acquisition. And there are some tough headwinds we are faced -- we are working our way through. I will let the team provide the details. I do want to point out 3 unusual items this quarter that affect comparisons. The first is related to interest expense which was down $22 million year-over-year as a result of a $15.4 million write off of unamortized debt issuance cost in the second quarter of last year. The second item is on the gain/loss on investment line, where last year we had a $13.4 million gain on the sale of a property and this year we had a $3.7 million loss producing a swing of $17.1 million. There is also a big change in taxes. TDS' overall effective tax rate was 39% this quarter compared to 9.5% last year when income tax expense was reduced by $29 million primarily due to tax benefits from some state tax law changes and discrete items. These 3 items which are all below the line significantly impact EPS comparisons. Staying with taxes for a moment, as you know, the bonus depreciation rate for federal income tax purposes is currently 50% and it is expected to expire at the end of this year. We expect federal income tax payments to substantially increase beginning in 2013 and remain at a higher level for several years as the amount of TDS' federal income tax depreciation deduction substantially decreases. By the way, for the full year, we are estimating an effective tax rate at TDS of about 35%. Our balance sheet remains strong. We ended the second quarter with $820 million in cash, cash equivalents and short -- and investments, as well as all of the $700 million on the revolving credit facilities. And I think it is always good to point out once in a while that we have no unfunded pension liabilities. You also know that we did not purchase any shares this quarter. Many of you have asked about our progress in identifying and evaluating additional steps TDS and or U.S. Cellular could take to enhance shareholder value. I assure you that this effort is receiving a great deal of management attention. But unlike the very specific undertaking last year that involved analyzing how we could lessen or eliminate the discount between 2 classes of TDS common stock, this is a much more complex set of alternatives, many of which have interrelating dependencies and competing interest for capital, such as areas of potential investment versus other uses of cash. So, know that we are working on it, and then we will share any conclusions and actions at the appropriate time. Now, I will turn the phone call over to Mary Dillon.

Thank you, Ken. And good morning everyone. We have both successes and challenges in the second quarter and I'll update you today on the highlights and on our initiative to drive future results. First, I will review our accomplishments starting on Slide 5. We made solid progress in our customer acquisition efforts in the quarter with a 23% increase in retail gross additions, which breaks down to a 9% increase in Postpaid and a 77% increase in Prepaid. These results reflect efforts to aggressively drive new customer acquisition in 2 ways, by increasing awareness consideration and conversion of the U.S. Cellular brand and also by strategically expanding our distribution base. Key initiatives for the quarter included the introduction of a new product offering call U Prepaid in select Wal-Mart stores; ongoing deployment of our 4G LTE services; and the evolution of our Postpaid plan pricing to include pure data while continuing to offer differentiated products that include the industry's only points-based rewards program. These efforts will continue to be foundational to our acquisition strategy going forward and are now supported by a new marketing and communication campaign Hello Better, which launched in July. Our Prepaid business grew significantly with the addition of 20,000 net customers in the quarter, driven by the launch of U.S. Cellular prepaid offerings in more than 400 Wal-Mart stores, as well as the launch of new price plans and the expansion of our device portfolio. Smartphone adoption in the quarter was 52%, up 40% a year ago, though slightly dampened versus previous quarter by the U Prepaid launch, which is largely feature phones. Continued smartphone adoption, along with ongoing adoption of higher ARPU belief plans, drove total ARPU up 6%. In fact, 68% of our postpaid customers now have Belief Plan. Now, I'll discuss some of…

Thank you, Mary, and good morning everyone. At a high level U.S. Cellular's results reflect positive growth in revenues quarter-over-quarter as we improved ARPU. Operating cash flows declined primarily due to increased handset subsidies and higher system operations costs for data growth. Customer results were mixed, as we improved retail gross additions, but as Mary said, still challenged with retaining customers in the extremely competitive marketplace, and the somewhat still sluggish economy. Prepaid gross and net customer additions improved significantly as a result of our introduction of U Prepaid in over 400 Wal-Mart stores. As shown on Slide 11, second quarter retail gross additions were 277,000, up 23% from 226,000 in the prior year quarter. In the Postpaid segment, there was a net loss of 48,000 customers, as the 9% increase in postpaid gross additions was offset by an increase in churn. In the Prepaid segment, we did much better than a year ago adding 20,000 customers. In total, we lost 28,000 net retail customers in the second quarter this year compared to a much larger net loss of 58,000 last year. Postpaid churn, shown on the next slide, increased to 1.57% from 1.38% last year and remained stable from the level in the first quarter. As Mary commented earlier, we attribute this increase to the expanded distribution of the iPhone and aggressive promotions by our competitors, particularly for LTE devices and services. Additionally, we continue to see some migration from postpaid to prepaid offerings. We continue to add customers to our Belief Plans, 238,000 during the second quarter. So we currently have 3.6 million customers or 68% of our postpaid base on our Belief Plans. Slide 13 shows the trends in smartphone sales penetration and Postpaid ARPU. During the second quarter we saw 410,000 smartphones, which represented 52% of…

Thank you. Good morning everyone. Before reviewing results by segments turning to Slide 18, I'd like to give you an update on some business developments. First, with respect to IPTV, we now provide service in 5 markets, as of June 30. Our market rollout plans are moving slower than anticipated, as more rigorous plant upgrade activity has been needed to enable our copper network and prepare other infrastructure for IPTV services. As a result, we have reduced the number of markets to 10 that we plan to provide service to by year-end. TDSTV in these 10 markets will pass approximately 65,000 households in total. The delayed rollouts will not materially impact 2012, as many of the market launches were expected late in the year. While in the early stages of recent launches, we remain excited about our IPTV service, which is meeting our high expectations for customer take rates and we will look to launch additional markets in 2013. Also we're seeing a slightly greater impact of USF and ICC reforms, principally on the ILEC, as interstate voice traffic has been billed at lower rates coupled with an increased percentage of voice traffic. We continue to see the expected reduction of safety net support. Also declines in minutes of use continued, impacting other components of regulatory revenues. These impacts have been ongoing and are not related to the USF ICC reform. As Kevin Hess will discuss in more detail, recovery mechanisms will kick in that we will expect will lessen the impact of the changes from the USF ICC order over the back half of the year. And the third development I wanted to note, is our June acquisition of Vital Support System headquartered in Des Moines, Iowa. Vital brings nearly $80 million in revenue but is a lower margin…

Thanks, Vicki. Turning to regulatory, Slide 27. As everyone is aware last November, the FCC moved forward with the transformation order to reform their universal service fund and intercarrier compensation program rules. At a high level the thrust of their reform efforts relating to equity to USF is to encourage the deployment of broadband in unserved areas while simultaneously making sure USF disbursements are being made in the most cost effective manner possible. Regarding ICC reform, the FCC’s primary goal was to evolve the legacy compensation scheme and move toward a bill and keep regime for switched access for all carriers, limiting the impacts over a reasonable transition period. In doing this, the FCC also made certain reform decisions related to VoIP and phantom traffic. And finally, the order included many new reporting requirements for the wireline industry. My comments today relate specifically to the rules that impact rate of return carriers as all of the wireline companies owned and operated by TDS are under rate-of-return regulation for inter-state purposes. As shown on Slide 28, focusing first on the USF components of their decision, prior to the FCC’s order, TDS Telecom received universal service funds through 4 sources: Interstate Common Line Support, Local Switching Support, high cost loop, and the safety net additive. In 2011, this support totaled approximately $90 million. While the FCC’s order impacts the various mechanisms differently, all of the support mechanisms going forward will become a part of the new Connect America Fund. Based on their decision and further clarifications that came later, revenues for Interstate Common Line Support and local switching support will remain mostly unchanged in the near-term although local switching support will now be drawn from a new ICC restructure mechanism beginning in July 2012. The high cost loop mechanism is still in…

Thank you, Kevin. Slide 32 shows our 2012 guidance. We have adjusted our revenue guidance up by $40 million to a range of $850 million to $880 million to reflect the acquisition of Vital. We have tightened the range on operating cash flow to a range of $245 million to $265 million. This reflects first half results and current trends in the business. One, higher losses of the high margin legacy revenues including the impact of USF ICC reform; and two, higher costs as we implement IPTV, prepare back system offices and develop our HMS businesses, offset somewhat by operating cash flow for Vital. We have increased our outlook on capital spending [Audio Gap] to $190 million to reflect the impacts of certain non-cash items required to improve our copper networks for IPTV and the decision to invest in the development of cloud products and services. With the results of our increased capital guidance, and coupled with the effects of Vital, we are increasing our guidance on depreciation and amortization to a range of approximately $190 million to $195 million. Reflecting the changes above, operating income is now estimated in the range of $50 million to $70 million. I'll turn the call back to Jane McCahon. Jane?

Thanks Vicki. Dan, we would like to questions now.

[Operator Instructions] Our first question comes from the line of Simon Flannery of Morgan Stanley.

Mary I wanted to talk again about the iPhone, we've seen a couple of smaller carriers do deals with Apple around the iPhone and not have to make some of the commitments that Sprint for example had made. Any opportunity there to kind of find a meeting of the minds between yourselves and Apple? And then we've had a lot of spectrum deals in the industry. There is some spectrum for sale right now, perhaps you could just update us on where you think your spectrum position is, your spectrum needs are, and whether we should push to see doing anything more in the coming months?

Okay, Simon, thank you. On the iPhone first of all I can't speak too or have knowledge of the specific commitments made or not with other carriers, so I don't may be know that. What I would say is that yes, we would be open to selling an iPhone if we could if the terms are mutually beneficial, and when we look at our business right now, and look at our gross add momentum, there is plenty of people out there in the marketplace who are coming to U.S. Cellular obviously without carrying the iPhone. And that is something that we're really proud of. So, we will continue to look at options, one of the ways that we think about this too is that the device is just one part of the overall experience, that we're really focused on making sure that we're going to continue to be able to differentiate and excel by doing what we do best, which is delivering the leading customer satisfaction and that's across the entire experience. So a phone needs to work wherever you are no matter what the phone or operating system is and that's for example something that we're best at in terms of our network. So we're going to continue to lead with our strengths, keep our options open, and really balance for our customers and for the bottom line.

And on the spectrum?

Yes, Simon it's Steve, I'll take that one. I think as Jane said in her introductory comments we've filed applications with the FCC to preserve our rights to participate in the upcoming auction. And as a result we can't really say a lot about spectrum needs and activities right now given the anti-collusion rules. What I would suggest you do for some information is have a look at our 10-Q filing and in there we've got some disclosures about some recent and pending transactions that will give you some idea about recent activity, but for now we can't really say more than that.

Our next question comes from Ric Prentiss of Raymond James.

Couple of questions. It's been a busy day, so I apologize if this was touched. Can you tell us what percent of your base upgraded phones in the quarter and also what your policy now is on upgrades?

Let me take that.

Yes, Simon -- I'm sorry Ric I'll start. In this quarter we had about 9% of our base upgrade their devices and we made some recent changes in our policies around upgrades, Dave Kimbell who is our Senior Vice President of Marketing will maybe comment on those changes.

Hi Ric. Dave Kimbell. Yes we've continued to manage our upgrade economics through a couple of changes that we've made recently within the last quarter. We've introduced a device activation fee, we've adjusted our upgrade timer, and we've changed, through our rewards program, the number of points that are required to move your timer up. But most importantly I think for us it's continuing to manage the economics, as well as the growth in our business. So while we want to manage that upgrade, we also want to actively move people to LTE, our LTE network so we will continue to do that. We're also introducing some tremendous iconic devices like the PS3 as an example and so we'll continue to see migration towards that. And as we move more of our future phone -- smartphones that will continue to play a role in our upgrade rate. So we will manage it. We're also looking to strategically move that upgrade rate forward throughout the rest of the year.

Okay, and what was that upgrade rate last quarter and the year before just to compare?

Last quarter was --

It's been running around that 9% level over the last couple of quarters. There was nothing unusual either, movement either way in second quarter versus what you've seen in recent periods.

Okay. And second question is, if you think back to the last iPhone introduction, did you see churn spike up, I seem to recall that from the call and as we look to the potential introduction of our new iPhone 5 say the fall, what do you thinking as far as how to combat that?

Yes. Ric, its Mary again. Yes, we would expect that there is some pent-up demand in the marketplace and I think we'll see some impact on that. One thing that we are really proud of frankly, and Dave touched on this, is that we have offered a very iconic cutting edge LTE device already to our customers with the S3, which our customer base is responding very favorably to. So, the access to an LTE device really well ahead of this phone is something that was very important to us strategically. And I would say it relates to how we will manage it, really a continuation of a couple of things. I guess, first will just be playing -- continuing to play our offense, which is making sure that we have great offerings like the S3 and many others that we continue to launch LTE devices, as well as our roll out our network. That we have new advertising -- a marketing camping that is really designed to really break through the clutter in the marketplace and differentiate U.S. cellular further as well as continue to offer great experience in customer service. So, for us it's about continuing to play our offense. I would say that we also are continuing to build and increase our capability around what I will call predictive analytics in really managing the life cycle relationship with customers with U.S. Cellular. So, whether it is really making sure that we have got a long-term rewarding loyal and -- loyalty program and membership experience but also, using analytics to really understand and predict who might be likely to return proactively target those folks with relative retention offers.

And then, LTE sounds like a really pretty important part of process. What percent of your cell sites have got the fiber backhaul now for the LTE? And how important is voice-over-LTE in the process?

I think we probably want to give you the number on the percent of fiber backhaul, so we will look that up, that's certainly a key part of the strategy. And in terms of voice-over-LTE, I think like everybody in the industry we look to that as one of the future areas that we certainly will be entering and it is certainly a way to help manage data growth and cost. So, we will be doing some trials middle to late next year on VoLTE and continue to develop that capability as well.

Our next question comes from Sergey Dluzhevskiy of Gabelli & Company.

Two questions. First of all, Ken, on your review of various options to enhance shareholder value, we were just wondering what is the timetable for decision making process. Clearly the company has already spent a considerable amount of time. And it impacts your ability to repurchase stock. So, if you could provide some update on when should we hear more maybe more substantive update on these issues? And second question, Mary, on LTE rollout, you plan to cover markets with about 58% of your customers as LTE by the end of the year. If you could give us a sense of what the initial response has been to LTE and your markets? What you are learning from those LTE launches and how it may impact your further LTE rollouts for the remainder of your footprint?

Hi Sergey, this is Ken, I am going to go first because Mary is going to be able to give you some nice information that I am not going to be able to give you, because I cannot give you a more specific time line. As I said, this is a process that has many interwoven and overlapping effects to it, it’s something that will eventually have a lot of board involvement in it. And I can't speak to that decision making process. What I can tell you, what I said is, as soon as there is something to say I will be out and let everybody know. Mary?

Thank you. Yes, Sergey, we are excited about -- I am really proud about our launch of LTE. I think our team has done a great job of moving quickly. The experience so far for customers is exactly what we had hoped, which is the network is performing very well. And in terms of speeds and latency and lack of -- or very low amount of any issues or dropped calls, we are very pleased with how the network is performing. And as you noted, we continue to move pretty aggressively, I would say, through this year. And we will continue really to get to pretty much all of our sites over time in the next couple of years I would say. The other thing that we are doing is really aggressively seeding LTE devices even in markets that are currently 3G markets so that we have customers who are ready be on the 4G network as soon as those devices are available to them. Because A, they love the experience, and B we love the impact that will have for us ongoing as it relates to costs and data management. So, so far so good and I know our engineering team is working very closely with our suppliers to make sure that we learn as we go in terms of efficient deployment and we are getting better with that all the time.

Our next question comes from Philip Cusick of JPMorgan.

Can you talk a little bit first about your churn up here 1.6 from the last few quarters, what is the indication going forward? Can you give us some idea on what sort of, on-contract off-contract your base is doing specially given this fairly higher upgrade rate?

Let me speak to the churn question first, which is, Phil, obviously that's something that we're very, very focused on. And I think, as I mentioned earlier, really quite excited about our gross add momentum and that's something that doesn't happen on accident in this competitive of a marketplace. So it tells us that the way that we're approaching the market and differentiating in what we're offering is appealing to a lot of folks. But certainly we're not happy with the churn level and are very focused on that. So whether it's really more deeply managing the life cycle relationship with our customers, for example, the notion of rewards, which is the basis of the whole Belief project when it was launched. Rewarding customers for loyalty is still very appealing. And so we're making sure that we're engaging our customers as much as possible in the rewards program and finding and testing and learning about different ways to incent them with rewards to stay obviously. And then in addition using some predictive analytics to more deeply predict who might churn in why, so that we can then more proactively reach them with relevant offers, so whether it’s even earlier upgrades or making sure they're on the right price plan et cetera. So using all the tools in our tool kit today to really manage both driving continued gross adds and reducing churn overtime.

Okay. And then as you think about gross add, you alluded to it but I don't know that anybody has called it out, gross add's up a quite a bit year-over-year. Do you anticipate that continuing to grow over the next few quarters on a year-over-year basis or could that even grow on sort of -- accelerate from here as well?

Well, we're focused on putting everything we can in the marketplace, I'd say from inside to execution to do exactly that, which is to continue to increase our share of postpaid customers and that's working so far. So again whether or not that will continue, we certainly hope it does, and as well we need to manage churn so that our net add numbers improve as well.

There was one comment about upgrades going up. Is that upgrade rate going up from the current 7%, 9% or did I hear that wrong?

This is David. No, we didn't make a comment about upgrade rates going up. We talked about managing that as throughout the rest of the year and maintaining an upgrade rate consistent with a year ago.

We did talk about instituting an upgrade fee that might be also.

Okay, I thought I heard the rate going up. And lastly what's the potential for shared data within your company. Do you have the systems that are sort of easily set up to do that or is that more of an effort that maybe is worthwhile?

Well certainly we're looking closely at how the marketplace is reacting to that. And what we did initially was launch a very quickly a promotion plan that we consider competitive with the new offerings on limited data and limited text in a plan that's very competitive with what Verizon has launched, and we're looking at shared data to understand it better and certainly will evaluate whether or not we move to that in the future.

Our next question comes from Sal Muoio of SM Investors.

I still have one comment I guess and then one question if I could. Just kind of following up on Sergey's sort of question, and it's just a shame you really can't be buying stock back here with the stock in the low 20s, I mean it's even below 20 a few months ago, such a fabulous time to be doing it. I just wanted to give you my thoughts on your process of funding [ph] that you're going through the board relative to the evaluation. Sort of -- you've a tough I think competitive hand to deal with obviously and that's a fact and you're running your business well as you can subject to the environment you're operating in, but the fact is you really haven't, you've not been able to grow the value of intrinsic value of the business per share for many years -- in a few. The business has run well et cetera but the environment is very difficult so -- and I think in the process you're going through here I hope you're looking at it in 2 ways, the first being, how do you close the gap between sort of mark-to-market valuations et cetera that's the easy thing to do. I think the other thing to do how do you grow the value, the intrinsic value per share, in this kind of competitive environment you've here, A, you operate the business as well as you can which you're doing already and you have been doing, but what you need to do really is consider a really serious stock repurchase because, the business is worth whatever you evaluate it to be worth we've our own numbers obviously as does everyone. But if you could buy stock back at $0.30 on the dollar or $0.40 or whatever you think the intrinsic value is, it's a fabulous way to grow value over time. And B, your balance sheet is underlevered you have the ability to do that. And what you need to do is generate more free cash flow. So, part of, I know, what you're looking at is operational part is how do you grow value per share and part is how do you still monetize the value is in the business that you don't see in the stock price. And I know it's very complicated but I just hope that significant share repurchase would be part of something you're seriously looking at. And then just, a sort of a question I have really, is really on capital expenditures and just want to get a sense for how much USM is sort of accelerating capital expenditures this year or sort of additional capital expenses because of tax benefits, and whether it is pulling CapEx forward from next year into this year or just some sense of the dynamics on -- I am not asking you for numbers for next year yet, but really just how much -- well you get the idea.

Thank you for your commentary, it wasn’t lost on me. Secondly, with respect to CapEx, the big driver of CapEx right now is the double effect of explosive data growth primarily from 1X devices, and that's the bulk of the customer base, at the same time that you are laying in your new LTE network. So last year and this are heavy years as we have the double effect. Going forward as we have more LTE in the network and as Dave already talked about we are pre-selling LTE devices in markets that aren’t yet LTE so that as soon as we turn on the LTE, we will be able to reduce 1X investment going forward. You put those 2 together they are the primary drivers of our capital and why we are optimistic about that trend line going forward. I won't blame it on bonus depreciation or anything like that because quite frankly in today's extraordinarily low interest rate environment that benefit is nice but it is not compelling enough to really change your capital spending strategy.

Dan, I think we are out of time, so we would like to wrap it up.

Absolutely, ladies and gentlemen this concludes today's teleconference. You may now disconnect your lines at this time and thank you for your participation.

Thanks everyone.