Ladies and gentlemen, greetings and welcome to the TDS and U.S. Cellular Second Quarter Conference Call. At this time, all participants are in a listen-only mode. A 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, Ms. Jane McCahon. Thank you. You may begin.

Thank you, Adam, and good morning, everyone. Thanks for joining us. I want to make you all aware of the presentation we've prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and U.S. Cellular websites. With me today and offering prepared comments from U.S. Cellular, Ken Meyers, President and Chief Executive Officer; Steve Campbell, Executive Vice President and Chief Financial Officer; and from TDS Telecom, Vicki Villacrez, Senior Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and U.S. Cellular Investor Relations websites. Please see those websites for slides referred to on this call, including non-GAAP reconciliations. We provide guidance for both adjusted OIBDA and adjusted EBITDA to highlight the contributions of U.S. Cellular's wireless partnerships. For TDS Telecom, these are basically the same numbers. We revised one non-GAAP measure in response to SEC comments around the clarity and use of such measures. Given the close similarities between the term operating cash flow and cash flow from operating activities as presented on our consolidated statement of cash flows, going forward we will change our use of the term operating cash flow to adjusted OIBDA in our earnings releases, investor decks and other public filings where this metric is used. There is no change to the calculation of this measure, simply a label change. 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 versions included in our SEC filings. Shortly after, we released our earnings and before the call, TDS and U.S. Cellular filed SEC Forms 8-K, including today's releases and filed our SEC Forms 10-Q. Later today, we will also be filing Forms F-3, as we are registering additional shares for our dividend reinvestment plan. Taking a quick look at the upcoming IR schedule, Slide 3, we will be presenting at the Drexel Hamilton Conference on September 6 in New York and we will be hosting our Annual Analyst Meeting in conjunction with the GSM Mobile World Congress Americas in partnership with CTIA Meeting in San Francisco on September 13. And in the first week in October, we'll be in Europe. Please let us know if you'd like information about any of these events. And do keep in mind that TDS has an open-door policy. So if you are in Chicago area, and would like to meet with members of management, the Investor Relations team will try to accommodate you calendar's permitting. Now, I'd like to turn the call over to Ken Meyers.

Thanks, Jane. Good morning. And thanks for joining us today. Overall, I'm really pleased with our results for the second quarter, and in fact, just how the first half has played out. We started out a little slow this year on some growth metrics. And we have closed the gap, while continuing to work on cost across the enterprise and investing in our network to move along the path to Voice over LTE. Our top priorities coming into 2017 was to protect our customer base, given the extremely competitive environment. To-date, we're achieving this goal. Our new Total Plans, which include an unlimited option contributed to the success, so too has our service-oriented culture handles ongoing investments into our network. All of these efforts resulted in record-low handset churn of just 0.91% during the quarter. Addition to the low churn, we were also able to increase handset gross adds. A combination of these two success produced growth in our handset customer base. In fact, I really like the mix of business this quarter. 83% of our postpaid net adds were handset net adds, a very different picture than a year ago when it was all about connected devices. Our Total Plans played a key role in meeting customer needs this quarter. I'm talking about both new and existing customers. As a reminder, our Total Plans are a pricing construct that simplifies things and eliminated overage charges. Included in this construct are our unlimited plans. We ended the quarter with 1.2 million subscribers on the Total Plans, representing 27% of our postpaid lines. Approximately 34% of the customers on these Total Plans have chosen unlimited option. And while I still have concern about the long-term economics of unlimited plans, I'm pleased with our second quarter subscriber results, both the plan mix…

Thank you, Ken. Good morning, everyone. I'm going to start this morning by commenting on postpaid connection activity, shown on Slide 8 of the presentation. As I'm sure, postpaid is the most important segment of our business representing more than 90% of our retail connections. We have 174,000 postpaid gross additions for the second quarter of 2017. This included 123,000 handset gross additions, which increased by 7% year-over-year. As Ken mentioned earlier, our new total plans as well as strong promotions on popular devices contributed to the success. We also had very low postpaid churn of 1.13% for the second quarter of this year compared to 1.2% for last year. As a result of both improved sales results and lower churn, our postpaid customer base grew by 23,000 total connections including 19,000 handset connections. Now represents a significant uptick from last year, when we experienced a net loss of 13,000 handset connections, and also from last quarter, when we experienced a net loss of 28,000 handset connections. And again, as Ken said earlier, we like the mix of this quarter's net additions, which is heavily weighted towards higher ARPU handsets rather than towards connected devices, as was the case last year. Just to complete the picture on our subscriber results, I'll mention a couple of other items that aren't shown. First, in addition to our handset net additions, we continue to have customers upgrading from feature phones to smartphones, including those upgrades total smartphone connections increased by 66,000 for the quarter. Also we had 3,000 prepaid net additions for the second quarter, therefore our total retail net additions were 26,000. We ended the quarter with almost 5 million retail connections, which is about 1% higher than a year ago. So let me say a little more about the postpaid churn…

Okay. Thank you, Steve, and good morning, everyone. We continue to make progress toward our strategic priorities for 2017 as shown on Slide 16, which I will cover as I speak to each segment's results for the quarter. Moving on to Slide 17, TDS Telecom's overall results for the second quarter were mixed with strong growth in broadband and IPTV revenues offset by lower equipment revenue in HMS, resulting in total revenues decreasing 6%. However, adjusted EBITDA increased 3% as HMS equipment sales have much lower margins when compared to wireline and cable margins. Capital expenditures in the quarter increased 6%. We expect higher spending in the second half of 2017 as we've completed most of our engineering and design work and are beginning the construction phases of the A-CAM build-out. We have network builds underway in all 25 states and are on target to have enhanced speeds available to customers in several states by the end of the year. Now, let's turn to our segments, beginning with Wireline on Slide 18. We continue to meet the demands of our customers for higher broadband speeds and IPTV services, by leveraging the fiber deployments we have made in select ILEC markets. Approximately 19% of our network route miles are built with fibers, as a direct result of our fiber deployment strategy over the last several years. A-CAM along with state broadband programs, will enable us to drive fiber even deeper into our network. We will continue to evaluate future opportunities to bring fiber to more service addresses both inside our current footprint, as well as in adjacent areas. One example of how we are looking to extend our fiber footprint is in Sun Prairie, Wisconsin. We acquired the fiber assets of this small municipality adjacent to our operations in the Madison…

Thanks, Vicki. And, Adam, we're ready to take questions.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ric Prentiss from Raymond James. Please go ahead.

Thanks. Good morning.

Good morning, Ric.

Hey, couple of questions on the U.S. Cellular side. Obviously, nice churn and returning to positive postpaid adds on the phone side. I wanted to probe a little deeper on unlimited then. Ken, you mentioned the Total Plan, but then you also mentioned a percent that were unlimited. What percent of your base is on unlimited and what kind of take-rate did you see on unlimited in the quarter?

So if you take the numbers, Ric, it turns out about 9% to 10% I think of our customers in total are on unlimited right now. You got 34% on the Total Plans and 27% of that - I'm going to give around 9%, 10%. And what was the other question you asked?

Yeah, within the quarter, was that just offer, so that's 9% of your base just in one quarter of offering?

Well, technically, we rolled it out one month left in the first quarter, but if you think about it, we rolled those plans out end of February and 27% of customers - 34% of our customers have already moved to this construct.

Okay. Also, when you think about competition, several of the other operators talked about July. They had seen some change in the behavior in July. Even Shenandoah came out yesterday and said that they had their best July ever. Did you notice any change in the competitive dynamics in July versus 2Q?

Nothing notable, no.

Okay. And then as you think about postpaid phone churn, obviously, a really low number. Can it go lower from here or what is your thought?

I don't know, because what I find fascinating when I look at all the Q2 numbers out there is everybody showed growth in handsets almost. And everybody had low churn. Now, some of the things going on with EIP and other things, help hold down churn, but I just wonder whether there is a bubble out there of churns that's across the industry, because everybody is - we didn't see that kind of population growth and yet everybody's had in handsets. So I don't know how that plays out in the next quarter.

And so that bubble be timed around the iconic device launches possibly or what are you thinking?

I don't know. I wonder whether we've got something going on, where someone is connected, but they haven't disconnected yet or whatever. They just don't know how we get - we all grow handsets in a market that's fully saturated right now. So something isn't lining up with me right now. Having said that, I'm really happy with what I saw in July. I'm really happy with everything we are seeing in our stores. But something just doesn't add up, when I'm looking at the macro level.

Great and the last one for me is the obligatory. Everyone seems to be talking to everyone, wireless companies to wireless company, cable companies, technology companies. Can you update us about kind of how USM views the landscape and maybe the controlling shareholders as far as there've been any update as far as their view of how strategic options might play out, because it seems almost rumor du jour out there.

Well it's an amazing environment right now, because right - we've got the rumors, but you also have the conversations going on not in private, but in public. As far as the company goes, I can tell you that there is a SEC formed sort of 13D that the trust filed many years ago, that lays out their intentions. And my understanding is that those intentions ever change, they'd have to change their 13D. And so, so long as the file is out there, I got to assume there has been no changes. We continue to do all that we can to serve our customers and continue to grow the business. I'm really pleased with what we saw in terms of growth this quarter. As a nice - I think for the first half, it's kind of a nice balance picture, right? I mean, we got the growth coming back, the cash flow. This is doing well. We continue to manage the cost side of the house. And we continue to strengthen the team. And I talked about a new addition in the marketing area too. So I'm pretty culpable of where we sit today. I am fully aware that the competitive landscape could change depending upon who does what to whom. But until something happens, it's pure speculation in terms of how would it impact us.

Great, thanks for the answers.

Thank you. Have a great weekend.

You too.

Thank you. Our next question comes from the line of Phil Cusick from J.P. Morgan. Please go ahead.

Hi, Phil. Phil, are you there?

Phil, your line is live.

Oh, yeah, can you hear me?

Yes, we can.

Okay. Sorry about that. So, first following up on, Ric, can you talk about the churn reduction? Can - was this fewer customers calling in and asking for something? Was it a better retention tool than you had before or is there something else going on? Was the reduction mostly involuntary or was involuntary down as well?

Well, I'm going to let Steve give you a little bit of color around the voluntary, involuntary first.

Yes, so when you look year-to-year voluntary was pretty comparable down a couple of basis points. We also had a decline in involuntary little larger 5 or 6 basis points improvement.

And when I look at it, I think, there is a couple of things going on there. One is, for us, the rollout of our Total Plans, we're able to meet the needs of customers that perhaps we weren't able to meet earlier in the year first quarter and the second quarter, which eliminated one of the potential dis-satisfiers there. The combination of the EIP plans, again meeting customer needs differently, and the strong performance in the involuntary or nonpaid area all contributed to it.

But it sounds like you had, again, sort of a very good retention tool for people who maybe weren't happy with price-to-value relationship versus some other carriers. Is that a fair way to look at it?

I don't know [if they weren't happy] [ph]. I think that we were able to meet their needs as well as anyplace else, and they have the - they have and appreciate - they know the network value that we deliver to them. So what we've seen probably the last - maybe as much as the half year, but clearly in the quarter. As we saw a good number of returning customers from some of the lower priced carriers, we're anecdotally - what we're hearing in the stores is that they're coming back for coverage. They left for price and came back for coverage.

And can you talk about any what sort of usage changes did you see? Any changes in the network speed, because of the increased amount of traffic?

Well, our main unlimited product has a speed limiter built into it, okay. And so what happens when you - when we look at our average speed went down, but that's because we - that's what we're delivering. And so with 10% of our customers taking a speed capped product, your average comes down. But we have not seen any notable network issues at all at this point.

Okay. And then one for Vicki, if I can. The small cable acquisition, I apologize, I didn't see this anywhere else. Is it 21,000 homes that are customers or past? And can you talk about the price or the multiple paid, and what's the sort of status of that footprint and plan? Thank you.

Yes. So today, we are announcing the acquisition of Crestview Communications, and this is a great example of a tuck-in that that we're interested in, at adjacent to our current footprint. It's family owned and under penetrated, but it is relatively small so that 21,000 is homes passed, okay. So that's 21,000 service addresses. And so it's - well, it's relatively small, it is important to our service that we're providing our customers in central Oregon, and we're not disclosing the price - immaterial.

And the footprint? Is that an upgraded footprint? Or do you have to do work yourself?

Yes. Actually, there is upgraded footprint in several of the communities. And it's also - because it's adjacent to our Bend, Oregon operations it will leverage fiber and other investments that we've already made to help fortify that network in Central Oregon.

Sounds great. Thank you.

Thank you. Our next question comes from the line of Simon Flannery from Morgan Stanley. Please go ahead.

Hi, it's Spencer on for Simon. Just a follow-up to the postpaid number, and maybe some of the drivers outside of churn. Can you provide any details on maybe the porting ratios? Are you seeing any prepaid to postpaid switching? Thanks.

I've seen a lot of prepaid to postpaid switching one way or another. Porting ratios, we haven't disclosed the actual numbers, but I can think of - I can say the improvement in those ratios clearly in the quarter as evidenced by the increase in gross adds.

Okay. Great. Thank you. And then, maybe as quick comment on your updated capital allocation policy and some of the peers in the Telecom space have recently made some changes. Can you just give us your thoughts there?

This is Doug, Spencer. No change to our phone policy at this point, we're sticking with 75%, 25% allocation, actually over the past several years or ahead of that allocation as far as the shareholders are concerned. But yes, we revisit that periodically, but no change right now.

Great. Thank you.

[Operator Instructions] Our next question comes from the line of Willis Brucker from Gabelli & Company. Please go ahead. Mr. Brucker, your line is live.

Hello?

Hi.

This is Sergey. Can you hear me?

Hi, Sergey.

Yes, I don't know, why the name was different. But the first question is for Ken. So we are witnessing more and more fixed mobile convergence. And obviously, fiber is an important element that supports 4G networks and it will become even more wider in the 5G world. Could you share your thoughts on fixed mobile convergence as it relates to U.S. Cellular business and it's applicability in your market, as you're moving to 5G? And also do you see a need or an opportunity for U.S. Cellular to partner with cable companies ILECs or fiber operators in your wireless footprint for both defensive purposes and also potentially to generate incremental revenues?

Thanks, Sergey. Today we actually work closely with a lot of the cable companies as they provide back half within many, many markets, primarily Ethernet that they were using in those markets that's been a key component of our backhaul strategy for last couple of years, hasn't it, Mike? It's for…? Talk a little bit about how you see fiber playing out in given the traffic levels in our markets.

Yes, so the Ethernet that we use today is based on fiber from the providers that we source it from them. We think that's got a long runway in terms of meeting our capacity needs with the roadmap of LTE higher throughput. But what I do believe, as you migrate to 5G, and the wide bandwidth and speed that it offers, you'll have to deploy fiber. We're participating in the standards to see how that evolves learning how the business models and the use cases that underpin those business models are developing. And if we see an opportunity in our markets, we're going to evaluate that, and then try to capitalize on those opportunities.

Okay, great. And another question it kind of relates to both TDS Telecom and U.S. Cellular. Microsoft has recently published a whitepaper on potential use of TV whitespaces for broadband access and potentially plans to invest in partnerships with telecom companies in rural areas are under-served and unserved rural areas. What are your initial thoughts on the Microsoft proposals and how do you see this, whether this is a threat, whether this is an opportunity, looking at from both TDS Telecom and U.S. Cellular's perspective?

Yes, Sergey. This is Mike. I'll take that one. So first let me start off with how we view licensed technology in general. Given our business model we think having a solid deep portfolio of license spectrum is critical delivering, a consistent high quality experience. That said, we do think unlicensed technologies enabled by LTE LAA allow us to opportunistically deal with short spikes in capacity demands as well as shorts spikes in speed. And those two technologies allow us to really manage interference in a way that I think some unlicensed technologies are not able to such as the one that you're referring to. I think, what Microsoft is proposing and the technology that underpins that needs to be proven out yet, depends a lot on the propagation modeling to understand the interference. And if you're going to deliver a high quality that has to work perfectly, and while it's been tested in labs and other environments, I don't think it's been subjected to a real world environment to prove that it can work well. And so we're going to be following that and again there's an opportunity there - we're going to be all over it.

Great. And another one for Ken, going back to kind of M&A landscape, following up on early question. So I guess, we see all the speculation, and obviously, you said that there's a lot of negotiations in public. I guess, as you look at the various scenarios, are there any scenarios that you are, let's say, rooting for? And how could U.S. Cellular participate in the deconsolidation over the next…

I'm rooting for any. Any that allow for, A, improved pricing, well, in the industry, that gets my attention all day long. And I don't mind a couple of big gorillas [ph] getting together, because every time they do that there is going to be a lot of swirl and give us some opportunity in the marketplace. Since I'm not driving this, I don't have a strong opinion. Who goes where, I just want to see it happen.

I see, well, last question for Vicki, following up on the cable acquisition. So obviously, this one is small and it's adjacent to one of your properties. But as you look at the deal activity in the cable space, obviously we're seeing a lot of acquisitions or - and larger deals in the last three months is where you're going to TPG and Atlantic Broadband buying the rest of Metrocast. Could you share your thoughts on the growing deal environment and the potential deal pipeline for you guys? Has it increased, decreased, any changes over the last three to six months?

I would - as I've been commenting last quarter as well, we're seeing deals of various sizes. This is an example of a small one. But we have seen deals of various sizes in our pipeline. And as I said, we're currently active.

Thank you.

Thank you. Our next question comes from the line of Barry Sine from Drexel Hamilton. Please go ahead.

Good morning, Barry.

Mr. Sine, your line is now live.

Hey, good morning. I think - can you hear me now?

Yes, we can.

Okay. It seems to be there's a bit of an evolution in your thinking on unlimited and your comfort with that and your ability to compete in the market. It seemed to me when unlimited first came out you guys were a little bit concerned. You've launched plans now. You're controlling network usage by limiting speeds. You're still growing subscribers. Your churn is low. Are you little more confident in your ability and this new environment to be competitive and grow than originally you were?

So I wasn't - I'm not worried about our ability to compete with unlimited. I am worried about the implications of long-term economics in the industry when you in effect cap revenue and you allow for usage that, I don't know, anywhere from 4 to 6 times the current level out there. And so I think there are some long-term implications around going to unlimited across the industry, that just don't make sense to cap revenue and have a requirement for variable investment in capacity. But in terms of our ability to roll it out, in terms of the sufficiency of spectrum that we have right now, our engineers' ability to deliver that, now, that hasn't been my concern. Those all fall in what I think our short-term controllable, short-term being the next couple of years. But long-term I don't think that the financial implications are healthy.

Okay. That clarifies. And then also on the VoLTE, you rolled out Iowa, now you have a bit of an experience there. My recollection is that your rollout plans had been rather extended, because of CapEx, you trying to call CapEx. Can you give us an update on your expectations toward VoLTE rollout? And then, what kind of financial impact, I'm assuming VoLTE inbound roaming revenue shows up in roaming revenue. What kind of financial impact might we see from future VoLTE rollouts?

Okay. So our rollout of Voice over LTE is not - our strategy is not formed by some financial constraints, rather it is the recognition that VoLTE is a very different animal than the CDMA voice network that we had. There are companies that have been rolling this out for 5 or 6 years, before they ever got the point they were ready to step on the gas. So we've been very deliberate. There are some big learnings to go along. There are requirements for handset OEMs to deliver software. That's probably been one of the longer poles in the tent, has been waiting for the software we need out of various handset suppliers. So our plan has always been with every technology rollout to do it over three years. So let we have a manageable change effort across the organization, as opposed to trying to do it all in one year and having ups and downs in your engineering workload. Next year, I would expect multiple markets to be in the 2018 rollout, and then with the most of it being completed in 2019. As we've talked about roaming, what we've said is what's interesting about VoLTE is VOLTE will be the first time that all the carriers in effect are in the same technology. And so, while historically we have been able to meet the roaming needs of two of the nationals, those that are at CDMA, we really weren't able to handle the needs of the other two carriers. And so, this in effect doubles our addressable market. Not much effect at all in 2017, because of - it's just Iowa half a year. But starting next year, I expect to see some meaningful growth in the roaming traffic as we roll out VoLTE in more markets.

And that's really thorough. Thank you very much for taking my questions.

Thank you.

Thank you.

Thank you, ladies and gentlemen. [Operator Instructions]

Adam, I think we are out of time for today. So we are going to wrap it up. If folks have follow-up questions, please give us a call. Thanks very much for joining us.

Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.