Ladies and gentlemen, thank you for standing by and welcome to the TDS and U.S. Cellular Third Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to your speaker today Jane McCahon. Thank you. Please go ahead.

Thank you, Jody. Good morning everyone and thank you for joining us. With me today and offering prepared comments are from U.S. Cellular, Ken Meyers President and Chief Executive Officer; and Doug Chambers Senior Vice President and Chief Financial Officer. 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 and adjusted earnings before interests taxes depreciation and amortization. To highlight the contributions of U.S. Cellular's wireless partnerships. As shown on Slide 2, the information set forth in the presentation and discussed during this call contain statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the safe harbor paragraphs in our press releases and the extended version in our SEC filings. TDS and U.S. Cellular filed their SEC Forms 8-K yesterday including its press releases in addition to our SEC Forms 10-Q. Taking a quick look at the upcoming IR schedule on Slide 3. Ted Carlson Doug Chambers and I will be out on the road in New York with Citi on November 14th. Doug Chambers and I will be doing one-on-ones at the Wells Fargo TMT Conference in Las Vegas on December 3. Ken Meyers Mike Irizarry and I will be attending the UBS Global TMT Conference on December 11. And Ken and I will be attending Citi's 2020 TMT West Conference on January 7. And please keep in mind that TDS has an open door policy. So if you're in the Chicago area and would like to meet with members of management the IR team will accommodate you calendars permitting. Before turning the call over I want to remind everyone that U.S. Cellular is registered to participate in the FCC's Auction 103 and due to the anti-collusion rules we will be unable to respond to any questions related to FCC auctions. And now I'd like to turn the call over to Ken Meyers.

Thank you, Jane. Good morning and thanks for joining us today. I know the headlines for the quarter looked like another quarter of revenue and adjusted EBITDA growth albeit with a small loss on postpaid handset additions. But in fact it was much more than that. In fact it was a very busy quarter for us. First the quarter started off rather soft but we picked up nice momentum throughout the quarter as some of the many initiatives we've been working on were implemented and progress was made on others. Subscriber activity picked up and improved month-to-month with positive net postpaid handset additions in September and again in October. As we head into the busy holiday season I like our position and the trends that we are seeing. In the quarter service revenues grew 2% driven by positive trends in average revenue per user and roaming revenue. Operating cash flow or operating income before depreciation and amortization grew 6%. One of those major initiatives was the completion of a refreshment of our brand and the launch of a new tag line Bringing Fairness to Wireless. Our new brand positioning nicely captures all that U.S. Cellular has stood for years in a fresher more modern look designed to broaden our appeal in the marketplace. This bringing Fairness to Wireless Campaign is the umbrella philosophy that covers our approach to public policy the mindsets of our team of incredibly engaged associates and our approach to the marketplace. Another significant endeavor was work to deliver new web-based technology that powers our online customer activity including via their mobile devices. This is a major plumbing project that now allows our customers to have a better and faster online experience today provides the platform for future growth in this channel. Another unexpected effort resulted in…

Thanks Ken and good morning everyone. I want to talk first about postpaid handset connections shown on Slide 6. Postpaid handset gross additions for the third quarter were 124,000 down from 133,000 a year ago due to an aggressive competitive environment that included service plan pricing changes and rich promotional offers for handsets. Also in the third quarter of 2019 we saw a onetime increase in gross additions due to the exit of a competitor in one of our key markets. Postpaid handset net additions for the third quarter were negative 2,000 down from positive 15,000 last year driven by the decline in gross additions and slightly higher churn. I'll touch more on churn in a moment. On a sequential basis both gross and net additions improved due in part to positive response to our price line changes which Ken discussed earlier in his comments and also to a normal seasonal trend. In addition to gross additions of smartphones we continue to have existing handset customers upgrading from feature phones to smartphones. As you can see on the graph on the right side of the slide including the upgrades total smartphone connections increased by 22,000 during the quarter and by 92,000 over the course of the past year. That helps to drive more service revenue given that ARPU for smartphone is about $22 more than ARPU for a feature phone. Next I want to comment on the postpaid churn rate shown on Slide 7. Postpaid handset churn depicted by the blue bars was 1.09% for the third quarter of 2019 higher than last year driven primarily by aggressive industry-wide competition. Sequentially postpaid handset churn increased partly due to seasonal trends and we did see an improvement in churn in the last portion of the quarter which we attribute in part…

Okay. Thank you Doug and good morning everyone. I'm pleased to report on our efforts to grow the business by building out new fiber markets. This transformation demands discipline and a focus on execution and we are moving steadily toward our strategic growth initiatives as outlined on Slide 14. At the same time we continue to promote higher sales and customer satisfaction in our existing markets. Among our many accomplishments, I'd like to highlight several that occurred during the third quarter. First, we launched a third new out of territory market advancing our fiber footprint. Second, we entered into an agreement to purchase another cable companies. And third, we enabled DOCSIS three dot one for an October launch in one of our key cable markets. You will also notice that the graphic presentation on Slide 14 has been modified to show service addresses by speed to better illustrate the transition of the work we are doing to upgrade our plans with A-CAM state broadband grants and fiber investments. Moving to Slide 15. On a combined basis total revenues held nearly steady with last year despite challenges in the commercial market and expected reductions in wholesale revenue. As a reminder in the third quarter last year TDS Telecom received an additional $4 million of support revenue provided through the A-CAM program which was retroactive to January 2017. Total cash expenses increased 3% partly as our fiber market launch activity ramps up but also due to a $2 million of increased legal expense in the quarter. As a result adjusted EBITDA decreased 9% to $73 million from a year ago. Capital expenditures increased 50% to $81 million as we continue to invest in our fiber deployment and rural broadband expansion programs. We also enabled DOCSIS 3.1 in our band cable market which…

Great. And Jody we'd like to open up the call for questions.

[Operator Instructions] Our first question comes from the line of Philip Cusick of JP Morgan. Please go ahead, your line is open.

And now you're just teasing Ric. So maybe we can. Maybe we can dig into the wireless momentum during the quarter. Can you take us as granular as you can through the months? And what changed the things exited better and maybe a little bit of view on has September strength continued in October?

Yes, I would say that June July, July August were just slow okay. What changed in September was everything from the launch of the brand refresh which increased advertising as well as the impact of pricing changes that went in late in August to respond to somebody else's move. So you had a double there. The launch of the new iPhone was late in the quarter had minimal impact but we saw a carry through right through October just like September. So it was notably different in terms of store traffic everything.

And that was driven, it sounds like more of a gross add issue but churn was up quite a bit as well. What's going on there?

What's going on is if I look at total we're still getting through the connected device stuff where inexpensive tablets put out a year ago come off their year commitment and people just don't keep those and you'll continue to see that. I think the modeling suggests through early part of next year. Similarly the watches. Those 2 nice they work well connected to the phone. Not seeing a lot of stickiness on the revenue side there. So you're going to continue I think to watch us as an industry struggle with the revenue off of some of the call them connected devices call them the accessories right? Where the core phone is right there and I don't need it especially given the way some of the unlimited packages are structured that I can get at that data one way or another.

Right. And then have you, last quarter you called that cable in terms of new competition. Have you seen that continue? Or has there been a little bit of a slowdown there since they've been in the market for a while?

I'd say that it's similar. In fact it's not increasing. And then the, and what it is if you think about how that's priced we feel the pressure at our very, very low end customer that isn't using one gig or two a month. Given that the pricing is very low I'd definitely bundle it in. It's not something that I'm interested in chasing right now.

Okay. Thanks very much.

Our next question comes from the line of Ric Prentiss of Raymond James. Your line is now open

Morning I guess our freaky Friday Bill and I switched places like a Disney movie Halloween. No. I want to follow-up on some of Phil's questions there. In prior quarters you've also mentioned that you were starting to see some win back effort as cable moves in. Can you update us a little bit on, are you trying to win back those customers since they are lower usage and lower end customers?

The real low end we aren't. There's not a lot of value there. What we are doing is specifically identifying any that may be more account related or ones that have greater usage where the value proposition that we offer is more compelling. And we will continue to do that. We've got an ongoing life cycle management program that we execute against.

Okay. And Ken I think in your prepared remarks you mentioned positive adds in September and October for postpaid was that postpaid phone or postpaid totals?

Both.

Both were positive in September and October. So it's good to see the trend on positive postpaid phones. Okay. And that you had seen churn improvement later in the quarter with the refresh on the brand and the rate plans back down to a more normal level or just kind of closing the gap just trying to gauge how much improvement the refresh and the rate plans have had.

You're asking at a level of detail that I don't have in front of me right now Ric?

That's fine. And when you talk about the new rate plans how should we think about that trend on what it means to ARPUs? Are you expecting that you've gotten aggressive to the point where ARPU upward bias given smartphones and unlimited would start flattening out? Or is there still the ability to say, listen we've got protection plans. We've got unlimited. We've got smartphones. Should we continue to see upward dynamic on ARPU?

Yes I'm expecting to still to continue to see the upward dynamic as we continue to manage the base look at other services that we can put in there like the device protection or whatever. It is imperative that we continue to grow that revenue. And all our efforts are aimed at that. That's what our plans are designed to do.

And Doug called out the change in the USF. As far as those, some of those USF fees being lower both revenue and expense did that start in the third quarter? Or was that a previous quarter this year that that happened?

We've had that all year first 3 quarters because it was a December last year event. And so we'll see that again in the fourth quarter then the year-over-year effect will go away.

Exactly. That's when we get to the lapping time. Okay. And then 1 for Vicki. Vicki you mentioned called out $2 million I think you said in legal and consulting expenses. What was that for? Is that kind of one-off and you're done with that so we can get back to a more normal level obviously without the retro from 3Q '18?

Yes. But both legal and consulting were onetime items. Legal matter was a onetime payment to resolve commercial litigation.

Okay. And then Ken I know you can't talk on millimeter wave but any thoughts on the C-band? You guys were joint signatory on an interesting letter that seemed to build a lot of consensus. Any thought on can we get C-band action from the FCC this year and get some kind of move forward on an auction process next year?

I can only hope. You talked about it last week. I mentioned it here. The industry needs mid-band we need a lot of it and we need a lot of it right away. And anything that gets us there is something that we'll support. If there's a better way to get it to get more and to get it faster we'll go there. I really don't care how we do it. We just, I think it's just critical to get it and get it soon.

Okay. Thanks, guys. Thanks a lot.

Our next question comes from the line of Simon Flannery of Morgan Stanley. please go ahead. Your line is open.

Great. Thank you very much. Just following up on Ric's point on C-band and mid-band spectrum. One of the elements of the filing included reserve prices and I guess there's always this question of if you have a nationwide reserve price or if there's something that reflects perhaps the greater demand in urban areas so that you're not having to pay the price that New York City might have as a reserve price. So do you think there's an opportunity there for differential reserve prices urban versus more regional markets? And also how are you thinking about CBRS playing into this mid-band spectrum? Do you think that's a viable solution? Or is that really just a kind of indoor and small cell? And any thoughts on, given the sort of numbers that are being thrown around by the, on the satellite side of things any thoughts about how you would fund your spectrum spend?

Okay boy lots of questions there. Let's start with, yes I would fully expect that you'll see like you have with all spectrum different prices based upon the demographics of the individual markets that are being licensed. I mean we all run economic models to decide how much spectrum is worth in various areas and I don't think that would change. With respect to CBRS versus the C-band Mike Irizarry CTO is in the room and I'll throw the question to him in just a second but we're interested in both okay? Generically anything, any spectrum is good. But are they, how are you thinking about it?

Yes, thanks Ken. Good morning. Not, CBRS is not in our view an alternative to C-band. There's not enough of it. And currently the power levels are significantly less than what's planned for C-band. So while it has a place in our 5G strategy we view C-band as critical to offering high speed and capacity in the less dense areas.

Great. And then funding?

Well funding. Well we have in place multiple funding vehicles that have been untapped. Peter Sereda CFO of TDS is actually in the room too. Pete you want to talk about funding?

Sure. Yes. So we've got a lot of cash on the balance sheet right now. We've got an undrawn EIP receivable securitization that we put in place a couple of years ago. So we've got ample capacity to enter that. We've got open bank lines undrawn. And we also, worst case we have adequate access to the capital markets. So there's lots of sources for cash to do this.

Great. Thank you.

And our next question comes from the line of Sergey of GAMCO Investors. Please go ahead. Your line is open.

Thank you. Good morning, guys. First question is for Ken on the tower front. So I think last quarter you guys have mentioned that you've been working with an outside firm to market the towers to increase lease-up rate. So could you update us on the progress on that front? Have you seen an improvement in lease-up rates? And also kind of looking longer term maybe over medium term how do you plan to maximize the value of your sizable tower portfolio considering U.S. Cellular operational priorities but also taking advantage of a top 5 wireless portfolio in the country that you guys own?

Okay Sergey. I'm going to let Doug talk about kind of the progress to date. Before I throw it to him let me talk about the backside of that question a little bit. We have entered into an agreement with a company to put more marketing efforts behind the power portfolio to lease it up more. However in doing that I'm still going to be stubborn and say that that work is subject to our engineering needs. As we are doing our network modernization we are once again moving all over the tower. We're going with tower top amplifiers on some things. We're putting MIMO antennas in other places. And while there is value, significant value in the towers the fact of the matter remains that we've got a wireless business that requires us to control that real estate so that we can control the quality of the service which is what the whole business is based upon. But we, but having said that we are continuing to try to get more revenue out of that asset. Doug?

Right. With respect to the new marketing arrangement we're about one year into that relationship. And overall we're very pleased with the results so far. Some of the accounting under the new arrangement is different and effects the financial statement comparisons Q3 to Q3 as we work through the transition. So on a comparable basis the net contribution to operating income increased five% year-over-year as it relates to our tower leasing business and we're continuing to work on driving more growth in the future.

Thanks Doug.

Great. And just a quick follow-up on that. What were tower rental revenues in the quarter? And what was the growth rate?

$17 million in the quarter. And the growth rate was, it was higher than 8%, or higher than 5% sorry. But as I said it's not comparable based on some of the accounting changes that took place upon the transition to the new service provider.

Great. Understood. And another question on the U.S. Cellular side related to the buybacks. So for the first time I think since 2016 you repurchased $21 million worth of USM shares in the quarter. Could you talk a little bit about the main reasons for this? Was it just valuation? Or was there other aspects working? And in terms, you've had this program I believe since 2009 and you have remaining authorization to buy back over 5 million shares. So given current valuation should we expect yourself to get more aggressive on this buyback?

Well Sergey this is Peter. So you know that this program is primarily designed for, to offset dilution from options and RSUs and things like that so that we can continue to keep our tax consolidation. So we will, we have been in the market from time to time we will be from time to time to prevent that dilution. So yes I guess the answer is over time we will be doing that as situation arises.

Okay. And the related question for you Peter on the TDS front. So if we mark TDS ownership in U.S. Cellular to market I think the implied valuation on TDS Telecom is below 3x EBITDA. So given that valuation will buybacks become a larger portion of your capital returns in the near term? Obviously taking into consideration your overall capital allocation plans but also given the valuation, the implied valuation of TDS Telecom.

Well Sergey we're not, as we've discussed in the past we're not happy with that valuation. But the reality is given all the projects that we're working on now and Vicki talked about the fiber rollouts and everything I think for the time being we're going to stay put on stock repurchase at the TDS level.

Okay. And my last question is for Vicki on the cable front. So obviously you are in the process of acquiring assets of Continuum in North Carolina. Could you talk a little bit about what attracted you to this asset? How does it compare to your prior cable acquisitions? And also the company generated $21 million in revenues last fiscal year. What kind of margins were they generating at that point?

Sure. Good morning Sergey. Cable acquisitions continue to be an important part of our growth strategy in addition to our fiber deployment program. And as I've talked about in the past we specifically look for opportunities that meet our target criteria which are for example underserved for broadband attractive household market growth and a target market that demands premium entertainment services. And so Continuum which serves customers just north of Charlotte North Carolina meets this criteria and at the same time has a culture that focuses on providing outstanding customer service which I think aligns really well with TDS' long-standing mission. So it was just really a great fit. Continuum has an upgraded network and is offering up to 500 megabit speeds and in some areas where it has fiber in place it's offering up to 1 gig speeds and that's about 10% maybe of the footprint. So we're really excited to have Continuum join our family of companies. And when we close we'll have more information for you about the numbers that we're looking at for guidance next year.

Thank you.

[Operator Instructions] Our next question comes from the line of Zach Silver of B. Riley FBR. Please go ahead. Your line is open.

Okay. Great. Thanks for the question. I just had 1 for Ken. You guys toward the end of last year flagged an opportunity to use both the, to edge out some of the markets I think you said it was about 500,000 pops. We're coming up on the launch of that. So can you reframe that opportunity for us? And whether anything has changed on that front in terms of how you see the opportunity and also the timing of that?

Yes Zach. Specifically what you're referring to prevail says we had licensed areas immediately adjacent to our current footprint primarily Northern Wisconsin and Sioux City Iowa. We continue to build out those areas. A couple of zoning challenges probably push us back to the first quarter of next year but those zoning challenges are behind us now. And we're continuing to make progress working on distribution as we speak. So I'm still excited about the opportunity. We're probably, it's going to slip about three months it looks like.

Got it. And then I guess more of a high-level question. Just with the launch of 5G in a couple of markets coming up I think someone asked this a couple of quarters ago but just high level any updated thinking about how we'll monetize that technology on either the residential or commercial side?

So what's really fascinating to me at least around 5G march that we're on here in the U.S. was a year ago it was all about use cases and business to business. And all of that revenue is really long lead time revenue. The amount of time it takes to bring a city along a town even along is not measured in months. And what you've seen in the last year is really the consumer market drumbeat around it. And of course you've seen a couple of attempts at pricing there but it's not been real clear that people have unlocked how to capture some of that value. So that's a watch point. Now for us the use case that is consumer and that we're very interested in is the fixed wireless. And we've been doing that with 4G today and the capacity pickup that we get with 5G I think lets us compete even better there.

Got it. All right. Thank you very much.

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

Two questions if I could please. The first one is when you look at your wireless business it's a portfolio of markets. Can you share with us just high-level observations of whether you're seeing differences in certain market areas and performance in terms of subscribers and revenue growth versus other areas and maybe what are the common characteristics of where you're outperforming and underperforming? And then just secondly just taking a step back are there opportunities, strategic partnering opportunities that you see that may be some of use in the past that might be an opportunity for U.S. Cellular and/or TDS to revisit as you think about the dynamics of the industry moving forward.

Hi, thanks and good morning. Mike. Yes. So with respect to the first one you're right. It's a portfolio just like everybody has a portfolio and different markets have different either underlying economics or different competitive positioning or in our case different spectrum and coverage properties. So there are some markets in our portfolio that are much higher than the 10% prepaid rate that we talk about as a company average, okay? So there are also some where it's very, very tiny. And we have historically seen as an example very, very strong bad debt results out of what I will call the Mid-America farming markets and your prepaid markets have got the higher churn. So yes there's a lot of differences across the portfolio. And we deploy different strategies to maximize the ore out of what I call each one of those mines. So in some places we push prepaid because that's what the economy and the customer base in that market wants. With respect to looking at how else do you build value in the operation we are always looking at that. And as the landscape changes in this industry potentially again assuming certain transactions actually move forward or maybe they don't and there's opportunities there we are looking at analyzed discussing how else could we either use our network or partner up and serve some other network needs. So yes we're, in order to get this where I'd like it to be long term we need to continue on revenue and cost and that doesn't necessarily have to come out of just our consumer market.

And so when you think about things on a strategic front is it that the, some of the transactions or the proposed wireless transaction that's out there is, until that gets resolved it's hard for you to take any steps forward strategically is that the issue right now?

Well until it's resolved the interest or the ability of other parties to commit is muddy at best right? I mean everybody's got to see where all the pieces fall so you can decide what's the next best move and everybody is looking at the same board saying if this happens go this way but if that happens maybe you go a different way. We're still waiting for that.

Thank you.

That's a great weekend.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.