Good morning. My name is Jessa and I will be your conference operator today. At this time I would like to welcome everyone to the TDS and U.S. Cellular, Third Quarter 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. [Operator Instructions] Thank you. Ms. Jane McCahon, you may begin your conference.

Thank you, Jessa. Good morning and thank you all for joining us today. I’d like to make you aware of the presentation we have prepared to accompany our comments this morning, which you will 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 website. Please see the website 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. As shown on slide two, the information set forth in the presentation and discussed during this call contains statements about expected future results, 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. Shortly after we released our earnings and before the call, TDS and U.S. Cellular filed their SEC Form 8-K, including today’s press releases, in addition to our SEC Form 10-Q. In terms of upcoming IR conference schedule, we’ll be attending the Citi Global TMT conference on January 9, and additionally Ted Carlson and I will be in New York and Boston next week with Raymond James. Before turning the call over, I want to remind everyone that due to the SEC’s anti-collusion rules, we will not respond to any questions related to the FCC auction. And now, I’ll turn the call over to Ken Meyers.

Thanks Jane. Good morning. Thank you for your time today and a big thank you to the whole U.S. Cellular team for a solid third quarter. We made progress on every major priority this quarter; handset adds, customer retention, revenue, EBITDA and network deployment, all moved forward. In summary, we produced nice top line revenue growth that drove strong increases in profitability, leading us to yet again raise our 2018 profitability guidance. Going a bit deeper, let’s start by reviewing customer results. We ran a number of successful promotions that drove 15,000 handset net additions this quarter. I’m pleased that we have again sequentially grown our gross additions and net additions, and handset churn remains slow at 1.02% per month. In late August we revised our unlimited Total Plans, which we now call Unlimited with Payback. These new higher-priced plans give customers a monthly bill credit if they have used less than three gigabits of data per line, removing a potential barrier for customers that are considering an unlimited plan. Customers both new and existing continue to appreciate the simplicity of the Total Plan construct and today 61% of our postpaid customer base is on them, which is contributing nicely to our revenue growth this year. While we saw good performance across our operating footprint, our Iowa properties were particularly strong benefiting from the shutdown of the iWireless network. Competitively industry remains aggressive and the focus of competition continues to be on device-related pricing, buy-one-get-one frees and other types of discounting. We continue to work to balance customer desires and industry economics to different pricing mechanisms. That introduction of our Total Plan Unlimited with Payback is an example of that. Industry-wide switching activity remains low, but the rate of decline has slowed somewhat. The level of switching activity has been…

Thank you, Ken. Good morning, everyone. I’ll begin my comments by talking about postpaid connections. We ended the third quarter with approximately 4.5 million postpaid connections, which represented just under 90% of our total retail base. As presented on slide five, total postpaid gross additions for the third quarter of 2018 were 172,000 showing significant growth for the second quarter in a row. The growth occurred in the handsets category, which as Ken said earlier was driven by a number of successful promotions. Following a similar pattern, total postpaid net additions also improved significantly over the course of the year with a loss of 1,000 connections for the third quarter. Our next slide shows the activity for postpaid handsets, which has been an area of particular focus for us. Postpaid handset gross additions and net additions for the third quarter were 133,000 and 15,000 respectively. Again, note the nice trend of improvement over the course of this year. In addition to the net growth in handset connections, we continue to have handset customers upgrading from feature phones to smartphones. That helps to drive more service revenue given that ARPU for a smartphone is running about $22 per month more than for a feature phone. Including the upgrades, total smartphone connections increased by 33,000 during the third quarter of 2018. These upgrades and the handset growth contributed to the increase in service revenues. Along with the growth and gross additions that we’ve achieved, postpaid churn remains low. As shown on slide seven, handset churn was 1.02% for the third quarter. Churn for connected devices was 3.04%, still elevated as the heavily discounted tablets sold in connection with various vast promotions continued to rollout out of contract. Now let’s look at the financial results for the third quarter, beginning with a review…

Okay, thank you Steve and good morning everyone. Overall we also had a very good quarter, reporting both top line and bottom line growth, and at the same time we continue to make steady progress toward achieving our strategic priorities for 2018. Wireline continues to grow broadband connections and ARPU as customers are choosing higher broadband fees, and in cable broadband connections grew 14%. Last quarter I highlighted much of the success we are having in our new out-of-territory markets. As a reminder, our fiber growth strategy is three-pronged; first, new out-of-territory fiber construction and several corridors within Madison and five communities near Madison currently targeting roughly 20,000 service addresses is under way, and builds on the completion of our initial market, and Sun Prairie Wisconsin added another 10,000 service addresses to build with fiber. Second, continuing to expand fiber in our existing markets, what we call fiber deeper spending, we estimate our current plans will cover an additional 40,000 service addresses within our ILEC footprint. And third, we are progressing on our construction projects under the A-CAM and State Broadband programs, which together will bring upgraded services to an additional 170,000 service addresses in total, of which 40% of the A-CAM obligation is required to be in service by the end of 2020. From an execution standpoint we have encountered some pressure points with contractors and suppliers and have had some weather-related delays impacting our fiber build, not to mention a record 100-year flood in the Madison, Wisconsin area. As a result and as I had indicated last quarter, we are challenged to complete all of this work by year-end and importantly have revised our overall capital spending to be lower than planned with some of this work moving into early next year. I would also like to note,…

Thanks Vicki, and I’d like to make a few comments briefly on slide 22 about our HMS business before we go to questions. In the quarter, OneNeck’s quarterly revenues were up due to growth in equipment revenues, while adjusted EBITDA was essentially flat. OneNeck continues to add new logos in the quarter and while we were pleased to see strategic revenues like cloud revenues grow, we have seen churn and compression for mostly legacy customers continue to impact our overall service revenue. OneNeck continues to implement additional cost saving programs to improve their overall cost structure. And now operator, we’d like to open the call for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Rick Prentiss from Raymond James. Please go ahead.

Thanks, good morning.

Good morning, Rick.

Ken, I’d like to start with wireless. Obviously some nice results there and you called out the team for putting it up. Can you talk to us a little bit further about the competitive environment? Are you seeing any impact from cable yet in your markets? And as you think of the balancing of gross adds, churn and ARPU, how you think the industry is going to shake out over the coming quarters?

Boy Rick! A lot there. In terms of what’s happening on the ground right now, not a lot of changes over what we saw really the first full nine months of this year. Yes, we’ve seen both Comcast last year and Charter this year start-up, but very, very, very limited impact. When I look at the port-ins and port-outs, except for being positive primarily due to our strength in Iowa, there’s not a lot of change anywhere right now. Your question in terms of where do we go from here? Huge impact to that one. I’m feeling pretty good about where the industry is right now and we’re all looking at investing in a new technology cycle and in order to invest in that technology cycle, we need to be able to have the funds out of the business to support that. I think we’re positioned pretty well to bring new services to consumers across the whole U.S. marketplace, and so I’m pretty optimistic right now.

Okay. And ARPU continues to be a bright spot. You called out the Unlimited with Payback plan, how are you thinking of the ability of one, smartphone conversions and then also unlimited plans to help kind of your ARPU and the overall pricing umbrella in the industry?

Well, Steve talked about both the progress we continue to make on migrating our portion of the customer base that isn’t on smartphones. That is an ongoing activity. We’ll continue to work on that. Similarly, we’ve done a really good job over just the last year. 61% of our customers are now on – of our postpaid customers are on these Total Plans. Not all of them are on the newest ones, but they are – those are moving along nicely and I think that’s one of the things that we continue to work on, but how do you get more value into the package for the customer, so that they are willing to give you $2 and $3 and $4 more. One of the headwinds that you’ve got on one side of these $1,000 phones that are affecting people’s upgrade rates, yes, that’s not a -- at the industry level, our level as an operator, the fact that they hold them longer, but that’s OK, especially when you start seeing some subsidization loss on equipment kind of flowing back into the competitive marketplace. On the other hand, it really drives the value proposition around the insurance policies. Now that’s some really nice revenue for us too.

Okay. And I think Steve also called out roaming. That was a pretty big roaming number, $50 million. Update us a little bit maybe on where you see that headed as you roll out probably more VoLTE into the marketplaces. How should we think about that roaming line heading?

That roaming line has got a lot of different variables in it, right? And I think you know, as we look at that revenue it is much harder to project that right now, because we’ve got some great contracts around VoLTE that help lower our cost. They are also at a lower revenue and we’re seeing this explosive growth. We’re bringing new carriers on, older carriers are converting their base like we are off of 3G to VoLTE, which again, there’s a rate change in there. So you know rate quarter – third quarter is always one of the higher roaming periods, both our own customers cost, but also for revenue; it’s all summer travel stuff. So you’ll see some sequential change as we just get into the fourth quarter and the seasons. But right now we don’t see it accepting that. We don’t see any other real big change right now.

Great, and final one for me is speaking of change, any sign of overbuilding by AT&T, FirstNet or T-Mobile with their 600-megahertz projects?

We see construction activity that has been going on for some time, but we haven’t seen any significant change in the actual end-market competition at this point.

Great, thanks a lot. Sorry, go ahead.

And we continue to strengthen those markets by working on distribution, working on customer satisfaction, working on our network. So we have customers that are fully satisfied in those markets today and in the future.

Okay, thanks. Nice quarter.

Thanks. It was.

Your next question comes from the line of Simon Flannery from Morgan Stanley. Please go ahead.

Thank you very much. Good morning. I think you made a comment about elevated levels of investment being required as we go forward. Is that a specific comment around 2019 CapEx? I think you mentioned spectrum purchases as well, but perhaps you could just elaborate on what we should be expecting there?

Well, I’m not giving guidance at this point in time, but as we look at where we sit today and the fact of the matter is yes, we’re investing in capacity, we’re investing in capacity this year. That’s kind of a normal level of spend notwithstanding very substantial growth in data on a year-over-year basis. But as I look forward, we’ve got an auction that’s about to start and we have filed applications to participate in it. In addition to that, as we look forward besides the actual auction, I expect we’re going to start investing in some of our earliest VoLTE markets. We’ll start investing in 5G next year and so that’s just as I think of ‘19 and ‘20 going higher. They are probably at a higher level than we’ve had in the last couple of years.

And on 5G specifically, it sounds like you’re going to use it as sort of additional mobile capacity and performance. What are the use cases that are most interesting to you? I know Verizon’s obviously rolled out fixed wireless. Is that something that you’re also looking at?

We absolutely are looking at fixed wireless as one of the fastest to the market services. Some of the – I’ll call it government centric or business centric, those are longer lead time type of sales and probably as we look at it, two to three years out in terms of development of that ecosystem and sales. But the fixed wireless, especially in our type of markets is by far the fastest to market opportunity.

Great, thanks a lot.

Thank you, Simon.

Your next question comes from the line of Sergey Dluzhevskiy from GAMCO Investors. Please go ahead.

Good morning, guys.

Good morning.

Hi. First question Ken is on the towers. Could you update us on your strategy for your sizable tower portfolio? I think you are – that you guys are probably number four and number five in terms of tower count in the country. So any update on that and as far as increasing revenues and third-party currency rates and potentially any benefits that you see in restructuring or financial engineering around this tower portfolio? Rather putting it in a dedicated wholly owned subsidiary or maybe in a joint venture because now the operators may allow you to pursue a strategy, but also accelerated growth in rental revenues?

Sure Sergey. It’s a really nice attractive portfolio, 4,400 towers. If I look at the revenue off of that, it’s up almost 15% as I think about last year to this year in terms of what we’re expecting there and we like that. We continue to work with other carriers to appropriately monetize that asset. I say appropriately because every time we’ve made a technology turn we have had to move or redeploy assets on those towers and all the work that we’re looking at now on 5G says we’re about to do that again; whether it’s a way to get more out of millimeter wave coverage by moving up the tower again, whether it’d be by putting in MIMO and other things on the tower to get more capacity and coverage. So we’ve got a lot of changes that are going to go on and nothing is more important to our whole strategy than to be able to maintain the high-quality network and control of those towers ensures that we get a first crack at that. So we will continue to drive revenue, but drive it appropriately so as to not interfere with the bigger picture, which is how do we meet the growing demands of our customer base.

Alright. My second question is on cable entering wireless. I mean you mentioned obviously the impact so far has been limited, but I was wondering on – I guess the gross side of this issue. As you look at your market, they’re obviously Comcast and Charter, but there are also smaller cable companies than your wireless footprint. Do you see opportunities I guess given your network quality to partner with some of those smaller cable companies to potentially offer MVNO services or fixed wireless capabilities that would kind of create new revenue opportunities for you?

That’s a great question. One of the challenges is the smaller company, the greater start-up cost investment and so I haven’t seen a lot of interest there. We’ve actually talked to the bigger guys a couple of years ago, but we’ll keep looking at that one Sergey.

Okay, and one question for Vicki. In terms of cable M&A pipeline, if you could share your thoughts as far as where it is right now, and obviously public multiples they have contracted so what are you seeing on the private side? And also, in terms of kind of cable acquisitions going forward, how do you guys evaluate them versus in terms of capital use versus organic fiber build that obviously you’re doing in discounts?

Sure. Good morning, Sergey. First on the first cable acquisition front. There’s nothing new to share at this point in time. That doesn’t mean that we don’t continue to watch for opportunities both small and large. We haven’t had any large deals as you know. But over the last 18 months or so we have done a couple of small tuck-ins. We did four tuck-ins actually, and that helped to both strengthen our existing wireline and our cable footprint. In terms of strategy, cable acquisition is an important part of our strategy, but as I said in my comments, we have a three-pronged growth strategy so that we have options. And as the market for the cable acquisition front has been slower with opportunities and higher pricing that we have with this deal, but haven’t been able to make those economics work. We are very encouraged and are following our out of territory and fiber deeper strategy, meaning investing fiber back into our core business, as well as expanding our footprint and overbuilding into new markets. And that all started with our Sun Prairie build and we continue to be very encouraged what we’re seeing come out of that. We have completed the Sun Prairie build. We had a great milestone here in the third quarter adding our last four FDHS, and now we are expanding into five more communities surrounding the Madison, Wisconsin area. And these are markets with have great demographics and great growth characteristics, similar to what we saw with some of our cable markets.

Thank you.

Your next question comes from the line of a Zack Silver from B. Riley FBR. Please go ahead.

Okay, great. Hey guys. Good morning.

Good morning, Zack.

So, one for Ken and one for Vicki. On the USM side, I was just wondering if you could expand on the customer response so far to the payback plans. Have these been a significant differentiator enough to get people into the stores or is it more of a retention tool for you? And then on the TDS side, you know Vicki you just touched on the out-of-home fiber build, but if you could – I think you said you’ve started to presell some of the Madison markets. If you could just give us an update on how those are tracking relative to what you saw in Sun Prairie? Thanks.

Hi, Zack, this is Jay Ellison. I’ll comment on the USM side on your question there. Relative to kick back, it’s both. We’re obviously out there to acquire customers, as well as a great retention tool as well for our customers. As we continue to look at that total planned portfolio and market. You know we launched it in late August and we are just coming into really the first set of build cycles for our customers out there, so I can’t really talk to that, but the buzz is extremely positive. Just spending a lot of time in our Iowa markets, both external and internal. So as we go forward, we’re very excited about it and it is going to continue to help us grow our business both externally bringing them in and clearly to keep our churn rates low.

Great.

And Zack on the out-of-territory fiber build, expanding a little bit on the comments that I made around Sun Prairie, which as you know was our first market that we launched and is now completed. Our take rates that we are seeing there are exceeding our experience in our ILEC fiber market and that’s why we are the incumbent Telco. And that’s because Sun Prairie is a larger market with better demographics and it had a lot of pent-up demand for this premium services that we’re rolling out with fiber. As we are in the middle of really building out and expanding into the five communities in Dane County, we began preselling to these markets beginning in May, and early indications are very similar to what we saw in Sun Prairie. The ramp up in the sign-up rate was faster than we had expected. So we’re very encouraged early on and we are right now targeting to launch these new markets in the early spring of next year.

Okay, Great. And then maybe one more quick one if I could. It looks like you raised on the USM side the guidance for the – for equity incomes the partnerships like LA and New York and I was wondering what is driving that performance. And also is there anything in 2019 that could maybe change that growth trajectory?

Well, it’s right. If you look at it, that went up just the same percentage as what our EBITDA did, and I think those are different – the accumulation of a couple of different investments, but there’s been growth in bottom line and I’m certain it’s more the same impact that we’re seeing now, given that those are in larger markets than our typical market. What plays out on the same competitive front that we talked about earlier probably impacts that. So depending upon either your outlook or what actually happens around the competitive environment in the largest markets, I think that’s what you’ll see going through that line item. Those markets have been great investments for a long, long time. They continue to support a very nice cash distribution.

Alright, thanks so much guys.

Your next question comes from the line of Michael Rollins from Citi. Please go ahead.

Hi, good morning. Thanks for taking the question. Just curious, for your gut feel for pricing and the environment competitively as you look out over the next 24 months in either a dual scenario where the proposed wireless merger gets done, and in no deal scenario where it doesn’t – and maybe you could explain how you think the pricing environment may evolve similarly or differently in that context? Thanks.

Well, if I had a clear crystal ball, I’d be at the racetrack this afternoon. I know what I think ought to happen, right? I mean, as I said a lot of investments that we’re starting all over in this industry and you’ve got to pay for that, and you can’t pay for that on a weakening revenue stream. I think across the board we’ve seen some nice growth in revenues that’s fall into the bottom line for everybody and that’s helps pay for the investments to bring consumers the new services that we are all talking about. We’ve seen in the past what happens when you decide to do just the opposite and that’s to play with price. Everybody has moved down when they’ve done that and I have just – it will impact our abilities as an industry to invest. We’ve all been working to get the spectrum made available from the government, so we’ve got lots of options coming up and I think our hope, at least that given all that investment that’s going on, people are smart enough to find ways to pay for it. I think that happens regardless of what happens in the M&A environment, because everybody is still in the same place, which is investing.

Thanks very much.

Mike, have a good one.

Thank you.

[Operator Instructions] Your next question comes from the line of Kevin Roe from Roe Equity Research. Please go ahead.

Thank you. Ken, it’s terrific to see the execution momentum in mobility. A couple of questions. First, as we move into the 5G world, can you update us on your thoughts regarding scale at U.S. Cellular versus the competition. It’s interesting to see one of your competitors FCC merger filings lamenting their subscale nature and inability to compete long term in 5G? And the second question is, if you could share the latest key takeaways from your millimeter wave trial? Thank you.

Okay. You know scale is still – a lot of it is local and regional and in fact when we get into a 5G world where coverage is impacted by the dynamics around millimeter wave, it may stay there, right? It’s our ability to meet the needs of those Coney city and state governments that we serve. I think is a meaningful size market; similarly the mid-size businesses in our markets. This isn’t – a lot of those services are not going to be nationwide. It’s about having coverage right where the customer has a need. So we’ll have the same challenges we’ve always had. We don’t have quite the same buying power than anybody else has, but those are things that we’ve faced before and I don’t know that 5G dramatically changes that at all. In terms of some of the tests we’ve been doing, Mike Irizarry who was our CTO is in the room and he is much more qualified to answer a question like that than I am.

Good morning, Kevin. Thanks for the question. So we’ve conducted several trials this year with millimeter wave and I’d say the two main things that we’ve taken away from the trials; the coverage of millimeter wave is much greater than originally thought. We’ve been seeing usable signals one to two kilometers out and it’s a function of how high you mount the millimeter wave antennas on the tower. So we’re thinking about that in terms of how it would impact our deployment should we move forward. The second thing is just the rate of maturity of the equipment from trial to trial. It’s faster than any previous technology that I’ve seen and that’s not just on the infrastructure side, that’s on the handset side. So I think there’s a lot of learnings that we’re gathering. We are still trialing the core aspects of the technology and will continue to do so, but it’s very promising what we’re learning from the trial.

And Mike’s comment about the ability to influence millimeter wave coverage by placement on the towers takes you right back to the comments when I was talking to Sergey about the importance of controlling that geography on a tower. And so that’s why as we think about options around the tower, it’s subject to what we need on the network side.

Thank you. Super helpful, thank you.

There are no further questions at this time. I’ll turn the call back over to presenters for closing remarks.

Great. Well, we thank you for joining us and look forward to continuing the discussion. Have a nice weekend.

This concludes today’s conference call. You may now disconnect.