Greetings and welcome to the TDS and US Cellular Fourth Quarter Operating Results 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. I would now like to turn the conference over to your host, Jane McCahon. Thank you. You may begin.

Thank you, Matt and good morning and thank you all 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 are Doug Shuma, Senior Vice President of Finance at TDS; 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 the websites for slides referred to on this call, including non-GAAP reconciliations. We provide guidance for both adjusted Operating Income Before Depreciation and Amortization or OIBDA and adjusted Earnings Before Interest, Taxes, Depreciation and Amortization or EBITDA to highlight the contributions of U.S. Cellular's wireless partnerships. For TDS Telecom, there are just a few small differences between those two metrics. As shown on slide 2, the information set forth in the presentation and discussed during this call, contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the Safe Harbor paragraphs in our press releases and the extended version 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 press releases. We will be filing our SEC Form 10-K on Monday. Taking a quick look at the upcoming IR schedule on slide 3, we will be attending the Morgan Stanley Conference on February 27 and presenting at the Deutsche Bank Conference on March 6. Please let us know if you'd like any additional information about these events. And keep in mind that TDS has an open door policy. So if you're ever in the Chicago area and would like to meet with members of management, the investor relations team will try to accommodate you, calendars permitting. And as you saw in the press release this morning, our next speaker has decided to retire. Doug has been an integral part of our leadership team at TDS and while we've all tried to talk him out of it, he's not - we've not been very successful. One of his greatest contributions to the company has been to build a strong, deep finance and accounting team, which made identifying his successor Doug Chambers an easy decision. With this much time to plan the transition, we expect it to be seamless. So Doug, you're not done yet. I'd like to make a few comments.

Thanks, Jane and good morning everyone. Turning to slide 4, beginning with our capital allocation strategy. TDS has continued to follow its capital allocation ratio. However, as we've been unable to find any sizable cable acquisitions that meet our criteria, the percentage of available resources being returned to shareholders is currently over weighted. Since announcing that 3:1 ratio back in 2013, TDS has invested $611 million back into the businesses, primarily through cable acquisitions and has returned $333 million to shareholders by paying $282 million in quarterly dividends and repurchasing $51 million in stock. We continue to look for additional cable acquisitions and have recently been successful, finding a few nice tuck-ins. Also in 2017, TDS Telecom bought some fiber assets from a small, out of territory utility in Sun Prairie, Wisconsin and is using those assets to overbuild the market with fiber. Early results have been very successful. Given the success and those from the fiber markets we have had in service for a while, we've identified additional opportunities to deploy fiber, both inside and outside of our ILEC footprint. We view these fiber projects as being very similar to acquisitions as they're truly investments back into our businesses to generate profitable growth and thus we will include them in the calculation of our capital allocation ratio going forward. Today, we declared our dividend, raising the rate 3%. This is the 44th consecutive year that TDS has increased its dividend, a record we're quite proud of. Now, moving to HMS. As we discussed last quarter, beginning in 2018, the HMS segment is reporting to TDS Corporate and its results will be recorded in the other segment in our financials. We'll continue to update you on what next progress and its guidance will be included in the total for TDS.…

Thanks, Doug. Good morning. My remarks this morning will primarily focus on our annual results, highlighting our key achievements in 2017. And then I'll turn to our strategic priorities for 2018. Steve will cover the fourth quarter operating and financial results as well as our guidance for 2018. That said, I can't held myself to spend a quick moment on the successes in the fourth quarter. We continued to add handset customers and did so in a responsible manner. Service revenue showed one of the best year-over-year performances in a long time. Costs continue to be low, all combining to generate a 7% increase in adjusted earnings before interest, taxes, depreciation and amortization. Yes, a good quarter indeed. Looking back at 2017, we made significant progress building and strengthening our business. To start, we accomplished our top priority, which was to protect and grow our customer base. Much of the success is due to the introduction of our total plans, which included unlimited data options. We launched the plans in February 2017 in a very fast response to the changing marketplace. It's clear that both new and existing customers appreciate simplicity of these plans. I reflect on the accomplishments for the year, one that rises to the top was that return to positive postpaid handsets, net adds. We did this with a 2% increase in gross adds in spite of a shrinking switching pool and a meaningful improvement in handset churn, which ended the year just under 1%. We need now to leverage those successes in 2018. As part of our initiative to protect the base, we focused on increasing customer engagement. This was an objective across all areas of the company, from the front line sales and service organizations to the network engineers and we've driven meaningful improvement in…

Thank you, Ken. Good morning, everyone. I'll start with U.S. Cellular's fourth quarter highlights shown on slide 11 of the deck. As Ken said, overall, it was a good quarter. We achieved growth in both postpaid and prepaid connections and in the postpaid category, a significant improvement in handset net additions year-over-year. We achieved sequential growth in revenues and our first quarterly year-over-year increase in revenues in several quarters. Our cost management efforts continued to produce good results with cost reductions in most major areas. We achieved increases in both adjusted operating income before depreciation and amortization, which was up 5% from a year ago and an adjusted earnings before interest, taxes, depreciation and amortization, which was up 7% from a year ago. As a result of the Tax Act that was signed into law in December 2017, we recognized a tax benefit of $269 million in the fourth quarter, due to the revaluation of deferred tax assets and liabilities at the new corporate tax rate. Looking ahead, we believe that we have sufficient financial resources to fund our day-to-day operating needs, our capital expenditure programs and debt service requirements for the coming year. At December 31, cash and short-term investments totaled $402 million. In addition, we have nearly $500 million of total borrowing capacity under our previous revolving credit facility and the new receivables securitization credit facility that we entered into during December 2017. So now, let's get into some of the details beginning with postpaid connections activity. Postpaid remains the largest and most important segment of our business at about 90% of our total retail connections. We had 177,000 postpaid gross additions for the fourth quarter of 2017. This included 133,000 handset gross additions, which increased by 15% year-over-year. These higher gross additions together with low churn resulted…

Okay. Thank you, Steve and good morning, everyone. I'm pleased to start this morning with some highlights of our accomplishments in 2017. Our targeted investments and execution of our strategic priorities, generated solid results and we managed cost across all businesses to improve margins and provide resources for capital investment and future growth. The achievements, which are shown on slide 20 and 21, paves the way for 2017 results. First, we focused on upgrading our networks across both wireline and cable, using technology including fiber and the full capabilities of DOCSIS 3.0, we improved broadband service and related products in our most competitive markets. In wireline, this allowed us to maintain broadband and grow IPTV connections. As a result, our wireline full year 2017 residential revenues increased 3%. By the end of 2017, we had deployed fiber to the home to 24% of ILEC service addresses. To further strengthen our broadband offerings, we deployed copper bonding technology to an additional 26% of our ILEC service addresses, which enables broadband speeds of up to 50 megabits. Second, our IPTV product called TDS TV is an important offering that leverages our high-speed network, improves ARPU and reduces churn. We have launched TDS TV and offer up to 1 gig broadband speeds in 29 markets, enabling 210,000 service addresses, which is roughly 28% of our total footprint. We have been focusing on bundling IPTV and high-speed broadband to drive higher penetration in these markets. Third, we expect that the FCC's A-CAM offer of 75.1 million annually for 10 years and worked with multiple states to secure additional broadband grants. We launched over 1,400 projects in 2017, all focused on building the infrastructure and the transport and capacity augmentation necessary to begin meeting our build requirements to the outermost areas of our markets. And…

Thanks, Vicki. I'll provide a few comments about the HMS business before we go to questions. First and foremost, we remain committed to the business. With the changing reporting structure, HMS will be able to leverage TDS' corporate IT resources to improve operations and customer service and better position itself for growth. Speaking to slide 31, while financial performance did not meet our expectations last year, we did see pockets of strength in some key products, specifically double digit revenue growth from our strategic ReliaCloud and related services and from co-location services. We also made important progress on key operational initiatives to improve the speed and quality of services delivered to our customers, which helped drive our NPS score to 47 from 33 in 2016. This year, we will continue to prioritize projects that improve our customers' experience. To increase sales, we are focused on leveraging data gained through detailed market analysis to target customers that find the highest value in our products and services. We also continue to refine our hybrid IT solution with a quickly evolving IT market and customer needs. In particular, expansion of our security portfolio and our advisory consulting services designed to help our mid-market customers navigate the complexities of a hybrid IT world and how our solutions fit with their needs, including our on-premise public or private cloud solutions and services. We look forward to reporting progress on all of these objectives. Now operator, we'd like to open the call for questions.

[Operator Instructions] Our first question is from Rick Prentiss from Raymond James.

First, congrats to Doug. Really have enjoyed working with you. Enjoy retirement, but it sounds like we might get one more earnings call out of you.

Yeah. Feel so, Rick. Thank you.

First question I've got is on the USM side. Obviously, very strong guidance for OIBDA in '18. If we think about the midpoint of the guidance, Steve, you kind of reflected on it a little bit, but how should we think about what your midpoint suggests as far as adds, churn and ARPU trends versus '17 actuals?

So, Rick, you're kind of asking to give you the guidance on all the things we don't give you guidance on in other words. It doesn't make sure I understand the question.

Yeah. Maybe, just as a midpoint, thinking things could continue along, it's at a more stable rational marketplace?

Yeah. I mean the midpoint assumes, we kind of continue to see the stability that we've seen in pricing over the last, I'd say, probably five months now. On the service side, a better environment, little crazy promotions that come and go, but on the service side, we're anticipating and planning on a continuation of that.

And same kind of thought on, the switching pool stays low, no iconic device is really shaking things up. So kind of like a business as usual, stable environment, is that kind of -

Yeah. As we've seen it, even with some iconic launches in the last year, you've seen continued shrinking of the switching pool and I don't know that anything is on the horizon that changes that dramatically. What you're seeing is customers are settling in so to speak. There's a segment of this market that always flips adjacent price, but between the EIP plans out there, the family plans, there isn't as much movement as there used to be, combined with the elongation of the customer relationship. What we're seeing is in our own customers, EIP customers get now to 30 months in terms of keeping their customer, keeping their customer equipment, which is very similar to what we're hearing from our vendor partners of what they're seeing across the whole industry.

Okay. You also called out the tower business as being successful, 5% revenue growth to 60 million. I assume, you haven't seen much from FirstNet yet, but are you open to the FirstNet coming on to your towers and do you think that could be beneficial to that growth rate?

It absolutely could be. We have said that we will work with AT&T, at the same time, we're also working with all of our state customers to make sure they understand that the very pervasive network we've got in places that others aren't. We'll keep delivering that to them until they can meet their requirements to their, call it, their customer base.

The other large project this year is T-Mobile with their 600 megahertz, have you seen any activity from T-Mobile yet or are you anticipating T-Mobile coming on your towers as well?

We have towers in our portfolio and I'm sure that we do business with T-Mobile, just like we do with everybody else. Have not seen a dramatic increase in their activity, one. Two, we're working with them on the roaming side and both to handle some of our traffic as well as to help them handle some of their traffic. At the end of the day, our markets aren't the biggest and therefore, the fastest return on every dollar somebody puts in and I think that as we continue to work for them, work with them, they'll find that they could serve customers without doing huge build ups.

And then obviously that leads the final question, which is T-Mobile on their call, called out they have money for strategic tuck-in acquisitions, but they also called you guys out and Verizon out as far as those markets they might go after where there's only two choices today, Verizon, and USM. I think I know the answer, but let's ask it anyway. Any updated thoughts on possibly considering the strategic tuck-in acquisition as opposed to the, we might overbuild you, stick that T-Mobile alluded to.

I don't know I've ever been called a tuck-in before. It's kind of [indiscernible]. That's a question that goes to the TDS level. That's not one that I get involved at all out here. We are focused on simply driving higher levels of customer satisfaction and higher levels of customer growth there.

Makes sense. Doug, any thoughts before you head out to the sunset, any updates on this?

Yeah. Rick, I'd say the same update you've gotten from me in the past. If the controlling shareholders were to change their position, we would be telling you about it.

Our next question is from Sergey Dluzhevskiy from Gabelli & Company.

Couple of questions. On the wireless side, so obviously U.S. Cellular has made significant progress on cost cutting activities this year and can you mention that the same level of activity is going to continue in 2018? Could you talk a little bit about some of those projects, maybe the largest buckets, of course savings opportunity that you see? And maybe a related question, as you look out over the medium-term, given the competitive environment, given the oppositions and the industry, given factors that you can control, what kind of margins you are targeting for U.S. Cellular over medium term?

So, I'll maybe try it the first way, Sergey. We're actually working diligently to take costs out of all different parts of the business. And when we talk about cost, that's the cost of the network. It's the cost of operating the network. It's the cost of our handsets. It's the cost of running customer service. So we look back last year and we made some real nice progress on some of our key third-party relationships, that as well as some continued investments in technology to make our call centers even more efficient. Going forward, there's a longer list, I don't know that there's any one item that even accounts for probably 10% of that total, rather work being done in every network and every call center and every department across the whole organization. The margin question is a, as I said last quarter, that's a real tough question right now, just given the pricing environment. At these levels, I think if you look at our service margins, they've improved nicely over the last year. And getting close to where I thought they'd eventually have to be, but because pricing has come down, we actually - getting to mid-20s doesn't give me where I need to be any more, because what's happened to the numerator. So I'm not in a position to give you good margin numbers right now, just given the whole uncertainty around pricing and the uncertainty around when we start to see some of the roaming growth I'm expecting, but I'm really pleased to be looking at a scenario that's look at, even a single digit revenue growth compared to the 3% and 4% and 5% revenue declines we've seen in the past.

And another question, following up on Rich's question on T-Mobile and obviously, they acquired 600 megahertz spectrum in, I think in your top 10 markets, probably 30 to 40 megahertz of that spectrum and they said they're moving aggressively and obviously they're targeting markets where Verizon or one of the big two carriers and maybe U.S. Cellular are probably the only providers. So, I understand that your markets are not the largest, but given the fact that potentially T-Mobile is moving in, could you talk a little bit about how you could be mitigating the impact from this potential negative factor and what else could be done from an operating perspective, given that you may be seeing a new competitor over the next year or two.

Yeah. So there's a couple of things. First of all, there isn't a sizable market that we operate in that doesn't already have Verizon, AT&T, Sprint and probably T-Mobile to, when you talk about things that's sizable, they're there. Okay. So where they aren't is, oh, no, maybe [indiscernible] where the density doesn't have a lot of attractive economics for someone to come in and build a new network. So, I heard that comment too. I'm going to say, there aren't a lot of sizable population pockets where there's only two carriers. At least, I haven't been able to drive through one region. Having said that, our marketing organization, our sales organization and our service organization are doing a lot to even strengthen our relationships with our customers, including lifecycle management programs. We're constantly in touch with our customer base, the network that we do have has taken some markets, 20, 25 years to build out to all the places that it covers. And that coverage is still a big advantage, but we will continue to play in terms of the competitive marketplace.

And one question on the wireline side for Vicki, you're budgeting additional 60 million for fiber build inside your ILEC territory and outside your ILEC territory, could you talk a little bit about the success that you saw in Sun Prairie that basically led you to potentially trialing and overbuilding more in 2018 and beyond and as you look at this 60 million bucket, what portion do you think is budgeted for out of footprint territory and what are sounds that - characteristics of those markets where you think your efforts will be successful?

Sure. Let me take that in a couple of pieces. First, from the guidance standpoint, Sergey, that higher capital this year is really due to that commitment to further our fiber strategy, as you said, both within and outside of our footprint. So we've earmarked the 60 million additional capital and that's roughly about half, half outside our current footprint and half with inside our footprint. And as you know, our growth in residential revenues that we have reported on all last year is really a direct result of those fiber investments. Also, in wireline, both the results from within our footprint and our fiber investments outside of our footprint. In Sun Prairie specifically, we purchased a small utility, the fiber access of Sun Prairie utility as they had just begun to build out fiber, higher speed broadband products themselves and we purchased that as a jump start really to overbuild that entire market, which is currently contiguous to our current ILEC footprint in Dane County and we have very strong brand awareness in that market as well as in other markets surrounding Dane County and that is where we are headquartered. And what we are seeing is that one, this Sun Prairie has very attractive demographics and a certain helpful density that made our economics work for a fiber overbuild and we're seeing the pent up demand in these high in these - is really high in these types of markets and customers are willing to buy the higher premium services. So we're really excited to further expand that strategy in 2018.

We do have time for Simon Flannery from Morgan Stanley.

So again best wishes to Doug. Ken, the industry had a very good quarter in terms of postpaid adds. There's a lot of theories there about the economy, about prepaid migration. I'd love to hear what your thoughts are on both the drivers and also sustainability of the pickup in adds and ARPU looked pretty good this quarter. You'd had a sequential increase there. Perhaps, you can just talk through the drivers on that and how you see ARPU evolving? Thank you.

So I'm going to let Jane talk a little bit about the postpaid, prepaid migration and what we might be seeing there. On the ARPU side, yeah, ILEC. So what you had throughout the year was the growing number of customers on unlimited. So some migration up from old rate plans within our markets up to those, one. Two in late third quarter, early fourth quarter, we actually raised price on one of our entry level plans. So I'd say, those are probably two of the better factors with the bigger one being that migration and step up. The other thing that goes into the calculation there is we talked about how about 42% of our customers now have a device protection plan and so that generates some revenue going through there too. But Jay, what have you seen on the migration side?

Yeah. On the migration side, we've obviously continued to track that and we actually haven't seen any major shifts one way or the other. It's almost kind of equal and equal out on a regular basis relative to postpaid to prepaid and then prepaid back to postpaid. So obviously, we're tracking that very closely. As Ken mentioned, just to kind of put a date around, we did some pricing changes, actually I think right around September timeframe, right around September timeframe going into fourth quarter. And additionally, as Ken mentioned, we continue to look at those kind of products and how do we make those products even more valuable to the customer to help drive them into our higher device protection plans and we've just seen great success and great focus. And finally even on that, we continue to utilize our call centers to that opportunity. Every time we have calls into the call center, once we complete a call, we feel very good about that satisfaction of call center as becoming a up and coming revenue generating channel for us with those opportunities.

As you talked about device protection there, Jay, one of the things that we're actually able to lead with was we were able to wrap in AppleCare into our device protection and we were the first -

Yeah. We did that almost about a year or so ago, going into this time, we launched that first here in Asia, actually globally to offer AppleCare incorporated into the actually package itself.

Which really gives a lot of value to the customer and it was very well received.

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back over to management for any closing comments.

We would just like to thank you all for joining us this morning and if you have any follow-up calls, please let us know. Thanks.

This concludes today's teleconference. Thank you again for your participation. You may disconnect your lines at this time.