Greetings and welcome to the TDS and U.S. Cellular Third 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, Senior VP of Corporate Relations. Thank you, ma'am, you may begin.

Thank you, [Latonia]. Good morning, everyone and thank you 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 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. For TDS Telecom, these numbers are basically the same. As shown on Slide 2, the information set forth in the presentation and discussed during this call, contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the Safe Harbor paragraphs in our press releases and the extended versions included in our SEC filings. Shortly after, we released our earnings and before the call, TDS and U.S. Cellular filed SEC Forms 8-K, including today's press releases and filed our SEC Forms 10-Q. Taking a quick look at the upcoming IR schedule on Slide 3, we will be presenting at the UBS Conference on December 4 and at the Citi Conference on January 9. Please let us know if you'd like information about any of these events. But also keep in mind that TDS has an open-door policy. So, if you are in the Chicago area, and would like to meet with members of management, the Investor Relations team will try to accommodate you the calendar's permitting. And now, I'd like to turn the call over to Doug Shuma.

Good morning. I'd like to briefly describe the impairment charge recorded this quarter. As part of our annual planning process, all of our business units prepare long-range plans and forecasts. Due to recent 2017 competitive end market factors, which were assessed as part of our annual planning, management at U.S. Cellular and HMS revised their long-range financial forecast. Based upon the recent factors, management determined that an interim impairment test of goodwill was required. As a result of this impairment test, U.S. Cellular recognized $370 million loss on impairment related to goodwill, and HMS recorded $35 million loss on impairment, thereby eliminating all goodwill in each of these business units. TDS will recognize a $262 million loss on impairment. The amount of the U.S. Cellular goodwill is different at TDS and U.S. Cellular primarily as a result of write-offs at the TDS level several years ago. The competitive environment was one of the factors that led U.S. Cellular to revise its long-range forecast. Specifically, we believe the introduction of unlimited plans, while popular and useful in attracting customers in the short-term, may limit the ability of the industry to monetize data over the long-term. HMS revisions reflect lower-than-expected revenue growth in 2017, along with a mix of breadth - with a revenue mix of lower margin revenue streams compared to prior forecasts. We've made another decision that will take effect for 2018. TDS Telecom's Wireline and Cable segments share a common strategy to provide best broadband connection to the market. In order for the TDS Telecom's team to focus all of their energies on continuing the successful execution of this broadband strategy, one of that will become its own business unit of TDS and will no longer be a segment reporting to TDS Telecom. Terry Swanson, President and CEO of OneNet and the OneNet organization will report to TDS corporate as of January 2018. Specifically, Terry will report directly to Kurt Thaus, the Chief Information Officer of TDS. And now, I'll turn the call over to Ken.

Thanks, Doug. Good morning. Thanks for joining us today. First, let me start by saying how proud I am what the team has accomplished over the last 12 months and more specifically this quarter, notwithstanding extreme pricing pressure, which was a major factor behind the $47 million drop in service revenue, adjusted operating income before depreciation and amortization fell just $10 million. Despite the fact that we had 56,000 more handset postpaid net additions this quarter, and we were serving more customers using more data. With the progress we've made on our cost initiatives that help closed this gap. While certainly not calling the job done yet, I'm very happy to see that service revenues this quarter were down less than 1% sequentially. It's a smallest decline we've seen in a while. Despite these favorable results, we also wrote off all the goodwill the Company had on its balance sheet. This goodwill was accumulated in the 1980s, 90s and early 2000s as a result of all the acquisitions that built U.S. Cellular into the regional carrier that it is today. This write-off was triggered primarily by the widening adoption of unlimited plans and in our view - my view, their impact on revenue growth across the industry. While the non-cash charge does not impact our adjusted EBITDA or our adjusted operating income before depreciation and position metric, this write-off also does not [indiscernible] creating unusual effect of tax rate to see this quarter. Our top priority coming into 2017 was to protect and grow our customer base. And I'm happy to report the momentum which began with the introduction of our Total Plans in February continued into the third quarter. This quarter, we both grew and retained more postpaid customers. Postpaid handset gross adds were up 21%. At the same…

Thank you, Ken, and good morning, everyone. I'll start with a summary of the third quarter highlights. First, we've achieved growth in both postpaid and prepaid connections. Notwithstanding the growth of the customer base, competitive pricing conditions continued to exert downward pressure on revenue. Total operating revenues of $963 million fell about 6% year-over-year. Inbound roaming revenues were $37 million for the third quarter, down about $8 million compared to a year-ago. This reflects the transition that we've been moving through as the network technology is changed. Over the past year, the mix of data traffic has shifted significantly from 3G to 4G, which has lower rates. Importantly, while lower data rates are putting downward pressure on revenues, at the same time, they are providing a significant benefit in the form of reduced expenses for our outbound data roaming. For the third quarter in 2017, the total benefit of lower data rates on outbound roaming expenses was more than 4 times as much as the rate-related reduction in roaming revenues. Our cost-management efforts have produced good results, with cost reductions in all major areas offsetting much of the year-over-year reduction in revenues. Remember, the total operating revenues were down $60 million, while adjusted operating income before depreciation and amortization was down only $10 million. For the third quarter, adjusted operating income before depreciation and amortization was $167 million. That's down 6% from a year-ago. For the nine months, it was $523 million, essentially the same as last year's $525 million and on $123 million less revenue. So, in light of our year-to-date results, which have been trending a little better than we expected earlier in the year, we're raising our profitability guidance. As Doug and Ken both already mentioned, U.S. Cellular recognized a loss on impairment of goodwill of $370…

Thanks, Steve, and good morning, everyone. We continue to make progress toward our strategic priorities for 2017. This progress is reflected in our continued growth in broadband connections, movement to higher-speed offerings and continued adoption of our IPTV service. Moving to Slide 19. TDS Telecom's achieved a 14% increase in adjusted EBITDA by maintaining growth in Wireline revenues coupled with double-digit growth in cable revenue. Sequentially, HMS revenues improved, but were still below last year's level. Overall, total telecom revenues declined 1% from the prior period. Capital expenditures in the quarter increased 44% as construction of the A-CAM build-out accelerated as planned. We expect even higher spending in the final quarter of 2017 as we strive to have enhanced speeds available to customers in several A-CAM states by early next year, achieving this all within our original CapEx guidance for the year. Now let's turn to our segments, beginning with Wireline on Slide 20. We continue to meet the demands of our customers for higher broadband speeds and IPTV services by leveraging the fiber deployments we have made in select ILEC markets. Approximately 19% of our network route miles are fiber-built as a direct result of our fiber deployment strategy over the last several years. A-CAM, along with state broadband programs, will enable us to drive fiber even deeper into our network, increasing this metric over time. We also remain actively engaged with the FCC and are still advocating the A-CAM program be fully funded to the level of its initial offer by or before the end of the year. This program is most critical to our ability to be able to serve our most rural customers. Full funding from the FCC will result in higher speeds for our rural customers being built faster to reduce the digital divide. We…

Thanks, Vicki and Latonia, we can take questions now.

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Ric Prentiss with ‎Raymond James. Please proceed with your question.

Good morning.

Good morning, Ric.

Good morning, Ric.

I have a question on the goodwill charge write-down at U.S. Cellular. Can you help us understand how much of it might have been related to the unlimited plans? And Ken, your concerns about the ability to monetize that versus the increased competition?

Ric, I can't break it out at that level because, quite frankly, we don't build that at that level. What I look at is what I'm looking at revenue trends and the ability to monetize primarily the data growth. I would say, between the two, in my thinking, it's what unlimited plans do to capping revenue while not capping capital that's pretty concerning in the model.

Okay. And on the increased competition, any signs and thoughts about what AT&T doing FirstNet might mean or T-Mobile rolling out 600 in your markets as far as - is that what you were thinking of as far as competitive intensity with some existing and new guys getting larger? And then what are your thoughts as far as those two efforts?

So, as we think about the competitive environment that we're in, we are now doing a lot with our customer base to make sure that we're meeting their needs, that we've got the right coverage in the right places, the right distribution. And while we do that, there is no doubt that either because of FirstNet or because of the 600 or because of different partnerships, we may see cable companies, we may see AT&T or T-Mobile in places we haven't seen them before. Having spent time in the market, what I can tell you is it's taken us 30 years to build the depth of our network that we have in places. And that's not something that's going to be overcome in a short period of time. And we aren't stopping where we're at either. So, competition is - I'm sure it's going to change, as this organization has adapted well when faced with change, and I expect it'll do it again.

Okay. And the second question focuses on your cost cutting. Obviously, a nice job there, able to remove costs quarter-to-quarter. Mentioned the job's not done there yet. Help us frame it as far as how much more do you have targeted. And maybe you could also talk about it from a margin standpoint. Margins are still kind of in the high teens based on guidance. Can you see your way back in this competitive environment to getting back into the 20s?

That all drives up that revenue question we started with. As I think about it, the organization is doing a very good job of just reducing cost per unit, a lot of different metrics. There are many, many costs in this business that keep increasing. It's just like rent. It's going to go up every year, right. Actual labor rate just go up every year. But what we've been able to do on the network side with some of the backhaul work, with the work we've been able to do in customer service, actually reducing the level of spend there, the whole organization is focused on what knobs we can change, what works we can take out. The Total Plans that we have launched this year have really helped, as an example, in customer service because there's fewer questions around things that - overcharges. So, we'll continue to work the cost side. It's really hard to do year-over-year reductions of total cost as opposed to reductions of individual unit items, but the revenue piece just makes that margin question unanswerable at this time.

Okay. And one final one from me. On ARPU stabilization, you mentioned how it is only down 1% quarter-to-quarter. But how are you feeling about ARPUs?

I mean, we're making changes around some of the offerings. We're testing it in a couple of markets. It wasn't ARPU I was talking about. It was total service revenue that was only down 1% sequentially, which starts to have the benefit of some of the customer growth offsetting some of their ARPU impact.

Okay. Thanks, guys.

Thank you. Have a great weekend.

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

Good morning, guys.

Hi, Sergey.

Hi. My first question is for Ken. So obviously, we saw a high-profile transaction between T-Mobile and Sprint fall apart last weekend. It doesn't look like wireless market - coming anytime soon. And obviously, you guys see it as well, and this is in part why you see - you had goodwill impairment charge for U.S. Cellular. So, T-Mobile and Sprint, obviously could get more aggressive in your markets particularly T-Mobile with the kind of - spectrum. With this as a backdrop, I guess, what are your expectations for M&A environment going forward? How do you feel about the regional operator model and how could you, U.S. Cellular or TDS, participate in potential M&A? And also, I guess the second part of this question, how do you plan to mitigate or prepare for potential intensification of competitive environment in your markets?

So, let's go to the part that I can control, or at least influence is, what are we doing in our markets? And as I said, we had done a lot over just the last year. And you've seen that in the customer growth that we've actually been able to produce for the last year. And we're going to continue to do that, right. That's the right products, right place range, right promotion, a new Senior Vice President of Marketing, sharpening the marketing mix, working on distribution rolling VoLTE out into our whole footprint, enabling VoLTE roaming for more and more carriers. I mean, it's we're doing a competitive business, and I don't expect that we're going to let up on that whatsoever. So just as sure as we're going to have somebody enter our market, we're going to continue to expand our offerings and sharpen our pencils on cost and continue to deliver a level of service that in our markets is still unsurpassed. So those are the things I can influence. What happens in the M&A market is something that I get to watch as the big giants do their dance.

What are your thoughts and I guess from your perspective, I mean, as you look at your company, how can you participate in M&A going forward, I guess?

Well, I don't think, Serge, any work we're going to do is after one of those four guys. We're going to - we just watch them do whatever they do.

Okay. And another question for you, Ken, is on towers. Would you disclose the tower rental revenues for the quarter? And also, could you update us on your strategy for the tower portfolio and your efforts to increase tower rental revenues and third-party balance rates?

So, I'm going to let Steve answer the question on what the actual revenue was for the quarter. As I said, we've got VoLTE launched in Iowa now. We are preparing networks in four other marketing areas for early next year. We still have - that will probably get us a little bit over half of all of our markets VoLTE next year, by the end of next year. We still have to finish that. And as I said before, as we're doing this, we're making modifications to the cell sites in certain places. And having that control over the geography remains a critical part of our whole network strategy. So, I don't see us changing our approach on tower ownership.

The revenue in the third quarter was about $15 million, and that was up 6% from a year-ago.

And we continue to work with and have discussions with other carriers about understanding their needs and where we could help meet those with our towers. That's something that we've been doing for years, and we will continue to do that.

Great and I guess one question on the HMS business for Vicki or for Doug. So obviously, you decided to reassign it to the corporate segment. It's going to be under corporate control. I guess, what are the issues in terms of turnaround? What do you think would be changed under corporate control potentially? And what point do you guys start evaluating whether it's best to monetize this business?

Yes, Sergey, it's Doug. Good question. But the corporate control, if you go back to my comments, it was less about that and more about freeing up the telecom team to focus on broadband, which they've done a great job on over the past few years. From a corporate standpoint, I think it's bringing a fresh set of eyes in, somebody with a lot of experience in the IT arena, somebody who sits on the other side of these managed service offerings and purchases some of those as well as cloud services. So, brings a lot of experience in this area, and we're excited to have him leading it.

Thank you.

Our next question comes from Barry Sine with Drexel Hamilton. Please proceed with your question.

Hey, good morning. I wanted to talk about your discussion on expanding your VoLTE markets. You're in Iowa now, and you've given out a number of states. Wondering how expensive that is. Does that have significant implications for capital spending? And then the implications for revenue potential, would that be expected to move the needle in terms of roaming revenue? Or is that just not big enough to really matter?

Thanks, Barry. A couple of things. Let's just talk about the investment side first. I don't expect it to move the needle significantly year-to-year. And the reason I say that is that's part of our management philosophy. We like to keep our investment activity of constant year-to-year so that it's manageable as opposed to having big bubbles one-year and then next year a drought and as a result, you're having organizational big shifts or trying to get more done than you can do well in any one-year. So, when we entered the - started down this path of VoLTE, we thought about it as a multiyear path, which is the same thing we did with LTE before that. Every one of the technology changes. So, while you may see some small variability year-to-year, I don't like to see like 25% swings and things like that. From a revenue standpoint, VoLTE itself enables certain services to the customer that we haven't really seen monetized. Things like better voice quality, what's called you know some rich communications or such. We haven't seen much monetization around that. So, I don't think there's a lot there. Could be wrong. I hope I'm wrong. At least, I don't see it right now. On the roaming, yes, it could move the needle. And that's the whole thought process behind it is that, in effect, by putting in voice over LTE and working with multiple carriers to enable it, we're, in effect, doubling our addressable market. Before, we were only able to provide roaming services to other CDMA-based carriers. And now, we'll be able to provide roaming to all other carriers. It's not as simple as when you were just doing voice up with CDMA. It takes months to actually operationalize this with each comparative, but that's something that we've been working on. I'm optimistic that it's going to have a revenue benefit while we're doing it.

Okay. That's helpful. And then just one more on the Wireline side, you have a number of technologies you're using to upgrade the residential broadband footprint in the ILEC. Could you give us an update of where you stand maybe by percentage of access lines, or maybe home paths, for each of these technologies? And then what could we expect with the cap build-out over the next year or two, please?

Sure. Hi, Barry. This is Vicki. As I look at Wireline, we have been very focused on rolling out our broadband strategy, which has included our fiber investments both within the core business as well as into one adjacent trial market. And so right now, from a fiber perspective, we have about 23% of our service addresses covered by fiber. And also, critically strategic to our copper areas, which is within some of our fiber markets and also in our other core markets, we have been rolling out copper bonding and copper bonding has been focused to provide up to 15-megabit to 50-megabit speeds, depending on loop length. And in fact, we're even working on bringing copper bonding in 2018 to 100-megabit speeds. And right now, copper bonding is covering about 26% of our service addresses. So just about half of our service addresses are covered with both fiber and copper-bonded solutions.

And the outlook with additional with cap?

With A-CAM then, A-CAM is providing funding to bring services at speeds up to 25 megabits and that's covering about 22% of our service addresses.

Okay, great. Thank you, Vicki.

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

Great. Thank you very much. Good morning. Ken, you talked about the iPhone cycle a little bit earlier. Do you think this is an opportunity for you to step up your porting ratios, your share gain, given that you were late to get the iPhone? There's a lot of people who maybe waiting until there's a new form factor coming at to switch back to U.S. Cellular. Any evidence of that yet? And then the FCC's got a number of proceedings around microwave spectrum 3.5. I know you kind of taking away then see it on 5G. But how do you think about what spectrum might be important to get in place? And how do you think about those various bands? Thank you.

Okay. Well, first of all, I'm going to let Jay Ellison talk about the iPhone question. And then Mike Irizarry, the CTO, is in there. He can share a little bit on thoughts around that spectrum.

Good morning, Simon. On the iPhone, just in general, what we've kind of seen as you look at this current product introduction both with the eight and now the 10, we look at both tied together between our presell launch in the store on the eight and then presell and commercial launch on the 10. We always see, I think everyone of us carriers see kind of two things out. But one, we have some form of constrain on that product, that offering. We all see our kind of initial take rate with any of our kind of techy early adopters. But when we combine the look of the eight and 10 together, we kind of look at it this juncture about what we saw out of the seven last year. So that's kind of what it was like on today's kind of snapshot. When we think about growing our awareness, we're continually working with both Apple and ourselves are doing specific programs leading up to new product introduction that really focuses some of our promotional activity and our base management activity as well as commercially pushing awareness around the iPhone at U.S. Cellular. And we continue to see our awareness of being able to come to U.S. Cellular and get the latest product as you can anywhere else at U.S. Cellular. And we're seeing incremental growth and awareness externally and clearly strong understanding that we carry the iPhone within our customer base

Simon, this is Mike Irizarry. When you think about spectrum, it's really a function of the use cases that you want to deliver to your customers. So, you're going to go after fixed and nomadic-type services, you're going to need most likely have millimeter wave spectrum that gives you that great bandwidth, so you can offer high speed and low latency. But if you want to go after the broadest set of use cases, I think spectrum below 6 gigahertz 3.5 being one of those that you mentioned, our great spectrum candidates to deliver a myriad of 5G use cases. I'll also say that having a good amount of low band, which I think we do, sets you up nicely to leverage your 4G investments as the foundation for any 5G strategy that you may want to go after, but we're following the activities around the SEC and 3.5 very closely because we think it is very good, promising spectrum.

In fact, I'll drill one step further. We're not just following it. We are making sure that our voice is heard. There are some concerns we have with some of the current, I'll call them, guidelines because they haven't been officially passed yet, right. But the size of the license area is something that we always - we weigh in on, the size of the potential licenses. How big are they going to be? What? 100 megahertz licenses? Are there going to be three 200s and one 100. The more licenses are available, the more smaller carriers like us have an opportunity to participate, where they all go with just real large licenses probably eliminates opportunities for us. So, we are actively talking to regulators to make sure that they understand the impact of some of their decisions.

Great. And just a quick follow-up. The upgrade rate in the quarter, I'm not sure if you gave that. And it's been pretty low in the industry. You think that's just a timing issue with the iPhone X being delayed? Or do you think, to your earlier point on EIP installments, that we're moving to sort of a longer cycle and we'll see lower upgrades even in the fourth quarter?

Simon, it's Steve. Our upgrade rate in the quarter was about 7.5%, and that's down from a little over 9% last year quarter. And I don't know if it's necessarily pent-up demand for the next iPhone as much as it is the lengthening in how long customers are holding their devices in this - the advent of EIP offerings. So, remember, a while back, it was fairly typical that carriers were upgrading their customers at 18 months. Now that customers are buying devices under these longer-term installment plans, we've actually seen that upgrade cycle lengthening to roughly 30-month. So, I would say that the upgrade rate is probably more reflective of that than pent-up demand.

Great, thank you.

Thanks Simon.

Our next question comes from Michael Rollins with Citi. Please proceed with your question.

Hi, thanks for taking my questions. Ken, can you remind us when was the last time in U.S. Cellular that you took impairment for the value of your assets?

That was in 2013 and it was when we had a couple of our markets, New York 1 and 2 that we were deconsolidating. And in connection with that work, we did an evaluation. And we had a fairly modest impairment loss. I want to say maybe in the range of $30 million.

And that was specifically to the related to New York 1 and New York 2?

Yes, the deconsolidation of those investments.

Was there any other time that you got impairment that didn't have to do with transaction, that was just a revaluation of the business?

Not, I would say, not in recent years, certainly not in the last to say, five or six years.

And when you consider this, did you also consider the value of the assets to a third-party or just the value of the assets based on your own cost of capital?

I'm going to let Doug answer it. This is a very specific accounting rules driven test one has to do that doesn't look at current operations or anything else. Doug, if you want to…?

I'll try to keep this high level. Good question. It's really a discounted cash flow analysis rather than a, what's the value of each individual asset analysis? So, you might get a very different answer when we use a weighted average cost of capital attached to U.S Cellular anybody else in the marketplace. So, it's a very rules-driven test.

And just a last thing on this, and thanks for bearing with the multipart question. So, if this is your view of valuation, which balance sheet accounts should investors add together and piece together to get a view of what your valuation is for the business right now? So, if you have to revalue the assets that led down to the impairment, are there like a few different accounts investors can add together and get a sense of how you are valuing U.S. Cellular today?

No, that's not how that tests works.

All right, so then with the marked down in value, right?

It's a write-down of goodwill. It's a specific account, Mike that was on the books for - as a result of acquisitions done many years ago. And that account goodwill, which is an intangible asset, has been written off. No other - you don't get to write up any other assets, nothing else is impacted. It was just one account. I'm answering your question on that.

Thanks.

We can take one more question.

Okay. Our last question will be from Phil Cusick with JPMorgan. Please proceed with your question.

Hi, this is Eudora Erickson on for Phil. Can you talk more specifically about competition in Iowa with iWireless and how you're preparing for T-Mobile's acquisition of the company?

So, we have seen no impact from that. We've been competing against iWireless for years, a company that T-Mobile alone. We are quite happy with what's going on in Iowa right now. Specific steps we may take will be driven by what we see in the marketplace. There isn't anything as - the network is in great shape. I'm happy with our distributions. We're just there last week, and we've got high levels of customer engagement. So, there's nothing that I'm being overly reactive on at this point in time.

Great, thank you. And if I can ask second one in regards to roaming. Can we expect further roaming rate declines going forward? Or has this cost saving taken for the more foreseeable future?

I don't know if it's answerable for the most part, we've entered into a lot of new agreements that we're seeing the effects of what happens with future negotiations, we'll see when we get there. There's nothing on the table right now, but I can't begin to guess where it goes next. I'm pretty happy with the structures that we have in place right now, and we're looking at just simply operationalizing all the different agreement, so we can start to serve more customers sooner.

Great, thank you.

Thank you. At this time, I would like to turn the call back over to management for closing comments.

Thanks for your time this morning, and please let us know if you have any additional questions.

This concludes today's teleconference. You may disconnect your lines at this time and have a great day.