Greetings, and welcome to the TDS and U.S. Cellular Third Quarter Operations Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Jane McCahon, Senior Vice President, Corporate Relations of TDS. Thank you, Ms. McCahon, you may begin.

Thank you, Tim. Good morning, and thanks for joining us in the home of the world champion Chicago Cubs. I want to make you all aware of the presentation we have prepared to accompany our comments this morning, which you can find on the Investor Relations section of the TDS and U.S. Cellular websites. With me today and offering prepared comments are 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, Vice President 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. As a reminder, we provide guidance for both operating cash flow and adjusted EBITDA. For TDS Telecom, these are basically the same number. For U.S. Cellular, however, the adjusted EBITDA measure includes imputed interest income from EIP and the significant contributions from our partnership, which we want to continue to highlight for investors. 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 paragraph in our press releases and the extended version in our SEC filings. As mentioned on our previous calls, U.S. Cellular filed a short form application for the ongoing forward auction for the 600 megahertz spectrum known as Auction 1002. As the anti-collusion rules are still in effect, we are prohibited from speaking about it further, we will not entertain any questions related to spectrum or the auction. Shortly after we released our earnings and before the call, TDS and U.S. Cellular filed their SEC Forms 8-K, including today's press releases and Form 10-Qs. TDS will be hosting one-on-one at the RBC Conference in New York on November 9 and presenting at the Wells Fargo Conference in New York on November 10, and presenting at the IDEAS Conference in Dallas on November 16. Also keep in mind that TDS has an open door policy. So if you're in the Chicago area and would like to meet members of management, the Investor Relations team will try to accommodate you calendar's permitting. And now, I'd like to turn the call over to Ken Meyers.

Good morning. I’ll start on slide 4. And overall, we had a pretty good quarter. We saw record growth and strength in the prepaid product line and generated better operating profitability. I would like to say upfront that our whole organization really pulled together to work around a couple of unexpected challenges. And in spite of these as well as the extremely competitive market, we continue to expect to deliver on the guidance we provided at the beginning of the year. Let’s start the discussion with customer results. We saw a sizeable shift with postpaid adds declining but a huge pickup in our prepaid business combining to generate 61,000 retail net adds. On the postpaid side, we saw unprecedented disruption in our new Smartphone availability with the recall and eventual termination of the note 7 and even though we had strong preorders for the new iPhone, we had significant supply constraints during the launch. All of this contributed to a net loss of 6,000 postpaid users. Churn remained low at 1.34% in the quarter compared to 1.41% a year ago. And breaking it down further, postpaid handset and connected device churn, which was 1.22% and 2.04% also showed significant improvement from a year ago. Our customers overall satisfaction is largely influenced by our network strategy. We were very pleased to be added back into the consideration set by J.D. Power for the network quality award in the north central region and very proud to once again be at the top of that list. We are excited to receive this third-party validation of our network strength. Staying with the network theme for a second, 99% of our postpaid connections are now covered by our 4G LTE network and that network is now carrying about 90% of all of our data traffic.…

Thank you, Ken, and good morning, everyone. I will begin with a few additional comments on customer results which are shown on slide 5 of the presentation. As Ken already mentioned, we had 61,000 retail net additions for the third quarter of 2016, up from 29,000 retail net additions a year ago. That growth reflected very strong results in the prepaid segment. Prepaid net adds for the quarter were 67,000 compared to only 12,000 a year ago with improvements in both gross adds and churn. As Ken said, we’ve seen only a very small amount of migration in our base from postpaid to prepaid, rather the drivers for the increase this past quarter included our strong promotion and advertising, along with the macro trends that are stimulating prepaid growth such as increased value in prepaid plans, budget conscious consumers preferring a pay-as-you-go approach and the widespread adoption of equipment installment plans that is pushing some customers looking for a less expensive phone to prepaid products. In the postpaid segment, we had a net loss of 6,000 customers. This was largely the result of lower growth additions which decreased 13% year-over-year to 174,000 due to a combination of factors including low churn across the industry, extremely aggressive promotional activity by other carriers, and unforeseen device supply issues. In the device supply area, our ability to satisfy customers’ desire for iconic Smartphones was impeded by both the recall and eventual termination of the Samsung Note 7 and the supply constraints on the new iPhone at launch. Postpaid churn remained low this quarter at 1.34% compared to 1.41% a year ago. As shown at the bottom of the slide, there was a net loss of 27,000 postpaid handsets in the third quarter, which is pretty comparable to the net loss of 22,000 handsets…

Okay, thank you, Steve, and good morning, everyone. Our overall results for the third quarter were mixed with total operating revenues down 4%, certain strategic areas showed solid growth. First, wireline revenues were nearly even with last year with residential revenues increasing 4%. Second, cable revenues grew 5% over last year, reflecting another quarter of strong broadband subscriber growth of 14% year-over-year. We also had positive residential video net additions in the quarter, which have been on an improving trend this year. And third, HMS revenues were down mainly on lower equipment sales compared to a strong third quarter last year. Cash expenses decreased, although not as much as total revenues, as a result, adjusted EBITDA on a consolidated basis was down 7% to $71 million for the quarter. However, capital spending was also down by $16 million in the quarter as we have substantially completed our fiber builds this year and completed data center builds in 2015. As a result, free cash flow improved in the quarter. With one quarter left in the year, we are tracking against our expectations. We have maintained our focus on those strategy priorities that we shared with you in February, which will be highlighted again in the upcoming slides. Beginning with wireline on Slide 15. Investments in our network and efforts to make higher speed options available to customers continue to drive growth in IPTV connections. We completed our planned IPTV market rollouts this year, but continue to build out service in those 28 markets, now enabling 183,400 service addresses. Our planned fiber builds are almost complete and will reach approximately 22% of our ILEC service addresses. When combined with copper service, our IPTV enabled markets will cover approximately 25% of our ILEC service addresses. We have been focusing on further driving IPTV…

Thanks, Vicki, and Tim, we're ready to take questions.

At this time, we will be conducting the question-and-answer session. [Operator Instructions] Our first question comes from the line of Ric Prentiss of Raymond James. Please proceed with your question.

Thanks, good morning. Can you hear me all right?

Good morning, Ric. Yeah.

Yeah.

Yeah.

Yeah, no problem. The delay with the cubs winning the World Series. I guess the phone lines are still jammed in Chicago.

Right now it is the roads.

Both my kids are millennials living in Chicago and they will be at the parade that’s epic. Congrats. Hopefully happens more than once every 100 years. Now to the real business. Slide 11, I think, is one of more interesting slides in the deck. I want to make sure I understand everything correctly on that. The termination of the naming rights. $13 million payment seems like a one-time payment. Can you help us understand, one, will you save money now on an ongoing basis because you’ve terminated that agreement?

Sure. The way you said that, is there another part to that question, Ric?

There will be. You know there is no one-part questions from me.

So, I thought I had one, I was waiting for two, that’s all. Two things. So to talk about that $13 million is primarily what I think of at least a noncash charge. I can't use that term. But what it represents is that the original deal that we structured with the SOX had us paying cash over a period of term that supported some of their financing. Turning out, we got done with the deal, they had like a three-year period that was the difference between our original term of our deal and their lease on the stadium. And so knowing that you aren't going to find somebody for three years, they just added that three years to our term. What that meant is that we wound up having to take the payments that we have made and amortize them over a longer period of time. So a little bit of cash that was paid 10 years ago, 9 years ago, 8 years ago was sitting on the balance sheet that would reverse out in the final years of our deal. So that we’ve got written off now. Okay. Going forward that deal wasn't very big. It was, you know, under 2% of our total advertising PR budget. And, you know, while there may be some savings, primarily we are going to see that redeployed into our local market activity, instead of Chicago-based activity, we will be doing things in Milwaukee and in Iowa and in Nebraska.

Makes sense. Too bad it was Comiskey instead of Wrigley.

We wouldn't want to give it up then.

Right. So just make sure that it is clear then, so this item it really nonrecurring. So Slide 11 that shows your operating cash flow at U.S. Cellular for the quarter really was $177 million that’s what we should be using maybe versus our estimates and consensus estimates to compare?

I think that’s correct, Ric.

Okay. And was this anticipated in your guidance, the $13 million payment?

Well, it wasn't anticipated in the guidance when we established in the very beginning of the year. It is considered in the reaffirmation of the guidance for this quarter.

Right. So I guess, just thinking through it, if we think of guidance this is something that most of us probably will not include in our analysis of your results. So if your guidance includes this item, we can use that in our math, okay. When we think of your guidance, I told you it was multipart. We are now three quarters through the year. It looks like the high end/low end of your guidance would suggest fourth quarter would fall somewhere between $37 million or $162 million for OCF. That’s a pretty wide range. What would cause you to go towards the low end of that range versus the midpoint or high end of that range?

Two things, Ric. Let’s start with the fact it is annual guidance. Okay? And we put out annual guidance back in February, things haven't changed significantly and so we are staying with annual guidance as opposed to getting into the boxes in effect giving fourth quarter guidance when you start to narrow things down a lot after three quarters. But having said, the dynamics are unchanged and that is big swings in promotional activity, one way or another that drive either a lot of volume or don't drive volume are what is going to cause that difference. There is not big changes around the roaming side. Earlier this year, we had concerns about current year impact on some of the support mechanisms out of DC. Those haven't materialized. So it is all going to revolve around promotional and sales activity in the fourth quarter.

Okay. So it makes sense. So we should – most of us will probably exclude the termination of rights and most of us think guidance includes it, so you can say don't include it if you want to and the guidance ranges mostly just helps competition play out in the quarter. Okay. The second question is just, I get it, disruption in the supply chain with the iPhone constraints, the Samsung Note 7. Can you help us quantify with gross adds being down 13% year-over-year, how much was this device disruption impactful in the quarter do you think as we look forward to thinking about what fourth quarter it could be looking like seasonality and 2017? How much of the anomaly in third quarter is related to the device issues?

Ric, we asked that question, looked at it three different ways. And I don't have a good way to tell you what didn't happen, okay. However, a bigger question I'm looking at is, is it how much of the shift is really just a change in how people are buying now. We keep calling this prepaid. But, in fact, if you go back to the early days, prepaid was a poor product to a segment of the consumer population that people didn’t necessarily want, right. It was higher priced in effect, less full featured. And what you are seeing now is it’s not so much that it’s the old prepaid, as much as it is a full service offering that has all of the features of a postpaid product, but packaged differently. And I believe we are seeing just like we talk about upgrade rates not being that important, it is an old metric, but doesn't really show where the business is going, I'm starting to question how the change between products, between postpaid and prepaid, how much of it is, again, old language that we are using versus real changes in the business.

Okay. But you do feel the disruption of the supply chain had an impact on your gross adds. If you were to say throw gross adds prepaid and postpaid together, there was an impact and it was worth calling out?

It absolutely was because we had orders that we couldn't fill. We had stores that didn’t have one of the iconic devices that was being advertised. And oh, by the way, then we had stores that were busy taking care of customers that had problems with phones as opposed to customers that could have been buying. So it had – definitely had an impact. I just can't measure it.

Okay. That helps a lot. Thanks, guys. And at least maybe watch the parade on TV.

Thanks.

Our next question comes from the line of Simon Flannery of Morgan Stanley. Please proceed with your question.

Hi, it's Spencer for Simon. Thanks for taking the question. I wanted to follow-up on prepaid. Obviously, a very strong quarter. You mentioned you are adjusting your marketing strategy based on the trends you are seeing, just to clarify, are you just going to spend more in prepaid or is it really shifting marketing dollars from postpaid to prepaid given the relative success you are having there? And then lastly, we’ve seen a slowdown from Verizon and Sprint in prepaid. How much of your success do you think is from less competitive behavior from your peers? Thanks.

So let’s start with – it’s a shift within our marketing allocation. It’s not putting more dollars on top of our marketing programs, number one. Number two, yes, we’ve seen a slowdown recently, but you were talking about the month here of July, August and September. And I would suggest that the market was very competitive during the third quarter. So I don't know that it’s a reaction to somebody else changing because we were – that product line was hot for us during all three months of the quarter.

Okay. So probably spending a little bit less on postpaid then, but the overall marketing budget stays the same.

Yeah.

Okay, great. Thanks.

Our next question comes from the line of Sergey Dluzhevskiy of Gabelli & Company. Please proceed with your question.

Good morning, Sergey.

Good morning, guys. Thank you for taking my questions. A couple of questions for Ken on the wireless front. So first question, obviously, I understand your comment about postpaid versus prepaid changes in the business. But I mean just looking at I guess fourth quarter and looking into 2017, what are the steps that you are taking to improve postpaid gross adds and particularly postpaid handset gross additions? And the second question is, your large wireless competitors are getting bigger and more diversified, obviously, we saw AT&T buying Time Warner, Verizon is buying Yahoo, they are focusing on [indiscernible] reentered content OTT. So what are your thoughts on kind of mobile centric video offerings and impact on competitive environment in your markets and what are some of the things that U.S. Cellular is doing on that front?

Good morning, Sergey. Let's start with adds. And let's kind of peel it back and go one step deeper, right. Adds are one way of driving revenue. It’s all about how do we drive revenue. And as we look at that, there are a lot of different initiatives underway that include continuing to get new line signup. But I am going to say line signup, so I get away from this prepaid/postpaid thing because I really think we are seeing a different type of shift going on right here. So, if I can drive the economics out of full featured prepaid lines to get them to the point where they are the same as what we got on the postpaid, the difference becomes meaningless. So, we are going to continue to drive add growth. And one of the tools that is really continuing to strengthen for us is the work I’ve talked about before that we are doing in the business and government sector. We see that as market development type of work where we are selling solutions into these organizations and getting our network strength better understood. Really happy, like I said, about us being back in the J.D. Power consideration set. Just because of the size of our operation when we got rid of Chicago we dropped off the radar screen for the last couple of years and we weren't able to compete for it. This year we were back in the consideration set and we won it again, okay, which fits to the strength of our networks, which is at the end of the day still the most important thing in the mid-sized and rural markets that we sell. So getting that message out there, getting people to understand it, which is what we do with the…

Okay, great. And a couple of questions on the wire line side for Vicki. One on A-CAM. So, obviously you had the initial offer of $82 million and as you mentioned the program got oversubscribed by about 160 million per year. I guess what are your expectations as far as how this over subscription will be handled given its relative size to the world size of rate of return available funds available to ILECs and if you have any expectations how different could the final offer be when you – after obviously the FCC processes all of those comments, I guess. What looks realistic to you? And my second question is on the cable side on the competitive environment if you could share your just thoughts and view for competitive environment in your cable markets. And how – what are your thoughts on how it could evolve I guess over the next few years?

Sure, thank you, Sergey. As I had said in my comments, with the revised offer and the oversubscription, right now the timing from a timing perspective we have comments, the FCC is looking for comments by November 14. I know that a number of comments have already been received. I just don't know yet and I don't know by how much. I think it will likely mean that the offer will be something less but we just really don't know right now. And we're going to have to wait and see as the FCC revises its offer. We are hopeful that we are still going to have a decision and a program in place by January 1. In terms of expectations, how will they handle it, I think that will depend on a number of factors. And I just can't comment on those right now. I will say, though, that I do expect that revised offer will come with less location build out obligations as well if it is revised downward. With respect to the cable competitive environment, we were really pleased with the growth that we saw in the third quarter and that has really been about our investments that we’ve been making in our products and services. And we’ve been seeing a significant shift of moving our customer base from lower broadband speeds to higher broadband speeds and I think that is really driving our success. The competitive environment we have seen the Telco primarily upgrading its copper networks with bonded copper capabilities which is up to a 60 megabit product and as you know, we have 100 megabit speeds, broadband speeds across our cable markets and by the end of the year we expect to be up to 300.

Great.

Analog reclamation has been a key initiative this year that we are substantially completing here as we speak. And that is providing a much better viewing experience for our customers. And so I think as I said, we had positive net adds for the first time in this quarter in our video net adds and that is reversing and declining trend.

Thank you.

We will take one more question, Tim.

Our final question comes from the line of Barry Sine of Drexel Hamilton. Barry, please proceed with your question.

Good morning. I wanted to go back to some of the trends around the postpaid subscriber growth adds. So first of all, on the iPhone, on the one hand you talk about record numbers of preorders but obviously there is supply constraint. So I think it’s about the fourth quarter that implies you have pent-up demand that might benefit you there. And on the Samsung issues, on the call you talked about the distraction of having customers coming into the store were flapping galaxy Note 7s. Presumably that is over, they’re not bringing them anymore so you can focus back on sales. And then also I'm wondering how tarnished are you seeing the Samsung brand. If customers are bringing in a Note 7 are they opting for an iPhone or another brand and is that brand damage likely to have an impact on the U.S. Cellular’s postpaid growth adds in the fourth quarter?

Barry, so I’m going to let Jay answer some of those questions. But needless to say, the hyperbole is a little bit misplaced. There weren't any flaming, anything involved with our customer base. In the Samsung brand is strong, has been strong, and remains strong. There is, there is clearly, a little bit of shifting that happens when someone has got a phone that they want right now and you don't have something in inventory but I don't think there has been any major shifts one way or another.

Barry, Jay Ellison here. On the supply question, we are in really – we really are in fairly good shape going into Q4 and into the holiday season. Maybe with the exception I think everybody is still seeing this on the higher memory configuration of the phones and some of the color. But otherwise, I think except for Ken commented relative to the launch where we really did see some significant constraint. We are getting in pretty good shape there. I think Ken is right also on the brand imagine and the customers are showing extreme – they get comfortable with certain brands and they stick with it even with what is going on. And even surprisingly, as much as has been out there, there are still some people that are even unaware of this issue in some of the marketplace out there. And finally I think Ken also alluded to, we really did not see much of a brand shift from Samsung to anyone of our other products that we carry really in all of our stores. And I’ve just spent several days out in the market and asked those very specific questions and my comments reflect what is going on in the stores themselves.

Okay. And then the kind of the shift in popularity on prepaid versus postpaid. If I look at your offers out there, you’ve got a very attractive offer on postpaid 7 gigabit, $49 a month. On prepaid, it is $45 for 2 gigabit although you’ve got a very attractive price point I should mention. I think it’s a Motorola phone. Are those the trends you are talking about because pricing wise it is still different if I look at your promos.

It is different but then you have to add in the equipment cost on the postpaid phone, right. It’s a different phone but a different overall package for the customer by the time they are done. You only wind up with an equipment financing plan on the postpaid. So there is still a little difference but the economics are much – in total are much more aligned than they’ve ever been.

Okay. On VoLTE, you guys have talked about VoLTE quite a bit and you are really moving ahead now. So what does VoLTE do for United States Cellular? Do you need the capacity that it frees up? Does is offer better voice? What are the benefit to the company and to the customer?

Okay. Mike, do you want to talk – Mike is our ETO.

Good morning. The main benefits we expect VoLTE to deliver to our customers is hire quality voice. A feature called high definition voice that would be immediately available to our customers. It also allows for simultaneous voice and data features on the device. And then lastly, we would be able to roll out a presence capability that allows customers to know where they are at in video.

Video calling is another one of those customer benefits that comes with it. On the other side, it also eventually frees up capacity because you aren't using CDMA radio channels anymore. And from an industry level, it allows us to serve any other carrier that is also using VoLTE from a roaming standpoint.

Okay. My last question is, first of all, congratulations on again winning the JD power award. Question about that and what that means. In the past, a lot of carriers use net promoter score instead or in addition to that. And one of the critiques of JD Power has been it may not measure actual customer satisfaction. Do you look at other measures? Net promoter score and I don't know if you would be willing to reveal what your score actually is.

We look at a lot of different metrics. We, in fact, touch our customer base every month. When you walk out of the store with a transaction, we are going to take a sample and see what you think about that “star”. What did you think about your customer service interaction? What did you think about the network? And so while there are multiple internal measures that we look at, what the JD power award does is it gives us third-party independent validation of where our network and how our network strategy play. And that is critical because today's world, advertising, everybody shouting something, something loud, trying to shout louder and consumers trust that JD power and promoter to say that we have looked at this and this is the best there is. And so, yes, it is gratifying and it is an important part of our marketing strategy going forward and it has been in the past.

Okay. Thank you very much.

There are no further questions over the audio portion of the conference. I would like now like to turn the conference back over to management for closing remarks.

We would like to thank everybody for joining us and please follow-up with additional questions and look forward to seeing folks as we travel about next week. Thanks.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful rest of your day.