Greetings, and welcome to the TDS and U.S. Cellular First Quarter 2018 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. It is now my pleasure to turn the call over to your host, Jane McCahon, Senior Vice President of Corporate Relations for TDS. Jane, please go ahead.

Thank you, Kevin. Good morning, everyone and thank you for joining us today. 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 sections 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; 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 those websites for slides referred to on this call, including non-GAAP reconciliations. We provide guidance for both adjusted operating income before depreciation and amortization, or OIBDA, and adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, to highlight the contributions of U.S. Cellular’s wireless partnerships. As shown on Slide 2, the information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the safe harbor paragraphs in our press releases and the extended version included in our SEC filing. Shortly after we released our earnings and before the call, TDS and U.S. Cellular filed SEC Forms 8-K, including today’s press releases. We intend to file our SEC Form 10-Q on May 4. Taking a quick look at the upcoming IR schedule Slide 3, we’ll be attending the JPMorgan Conference on May 16 presenting at Citi Small & Mid Cap Conference on June 7 and Oppenheimer’s Conference on August 7. Please let us know if you’d like any information about these events. Also 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 Investor Relations team will try to accommodate you, calendars permitting. And now, I’d like to turn the call over to Ken Meyers.

Thank you, Jane. Good morning. 2018 is off to a nice start for us and certainly a newsworthy start for the industry. The competitive environment has been pretty stable. I’m pleased with our customer satisfaction and network performance metrics. I also like what we’re seeing in revenue and the impact of our cost-reduction efforts, both of which contributed to our increased profitability. Let’s review the first quarter on Slide 5. Handset customer results are better than last year, driven by a slightly higher total of gross adds and lower churn. Revenue trends are improving even though the change with the new revenue accounting doesn’t let it all show through. Our cash expenses are down, and profitability is up. And this, too, is after a downward impact from the new accounting for revenue. To set the stage, the first quarter has historically been the slowest of the year, and this quarter looks to be the same. Industry-wide switching activity continues to be extremely low levels, impacted by equipment installment plans and customers keeping their phones longer. Our average customer now holds on to their device for 29 months, and this probably will increase, at least from what I’m hearing across the industry. Competitively, it was also a relatively quiet quarter with some promotional activity but mostly around equipment offers rather than service plan pricing. We maintained discipline with our promotional offers, and there were not any big shifts in port ins or port outs during the quarter. Over the course of the year, we plan to target our promotions and programs that strive to achieve our top strategic priorities of attracting new customers and protecting our subscriber base. In the first quarter, postpaid handset gross adds were up modestly year-over-year and postpaid handset net losses improved year-over-year by 12,000. Importantly, postpaid…

Thank you, Ken, and good morning, everyone. Before describing our first quarter results in detail, I want to briefly cover the highlights, which are shown on Slide 6 rather, of the presentation. As Ken said, 2018 is off to a good start. First, we achieved a meaningful year-over-year improvement in postpaid handset results, reflecting both a modest increase in gross additions and continued low churn. We also achieved improved results in the prepaid category with 6,000 net additions compared to a loss of 4,000 connections a year ago due to both higher gross additions and lower churn. We achieved growth in total operating revenues and a reduction in total cash expenses. As a result, both of our profitability measures, adjusted operating income before depreciation and amortization; and adjusted earnings before interest, taxes and depreciation and amortization increased by 13%. Finally, as Ken mentioned earlier, we adopted the new accounting standard for revenue recognition effective January 1, 2018. Let’s go ahead and review the impacts of the new revenue recognition accounting standard right now and get that out of the way. As I said, U.S. Cellular adopted the new accounting standard, which is sometimes referred to as ASC 606, effective as of January 1 of 2018. We did so using a modified retrospective approach. Under this approach, the new accounting standard is applied only to the most recent period presented, and the cumulative effect of the accounting change related to prior periods is reflected as an adjustment to the beginning balance of retained earnings. As a result, our reported results for the first quarter of 2018 are determined under and include the impacts of the new accounting standard, but our 2017 results are not adjusted and remain as previously reported. We included Slide 7 in this presentation to provide some insight…

Okay. Thank you, Steve, and good morning, everyone. We had a strong start to the year executing on our strategic priorities to grow our business. As we discussed on our last call, we had earmarked $60 million in capital this year to increase fiber deployments both through our fiber overbuild strategy and by continuing to expand fiber in our ILEC market. We continue to be pleased with our fiber trials in Sun Prairie, Wisconsin, which has encouraged us to move forward with plans to overbuild additional markets, especially where TDS has strong brand awareness. In February, we acquired a small video operator, serving more than 6,000 homes with mostly fiber near our Madison wireline cluster that complements our current Dane County, Wisconsin footprint. Additionally, we have announced plans to begin new fiber construction in several corridors within Madison and four communities near Madison with roughly 18,000 service addresses targeting both residential and commercial services. Lastly, including broadband state programs and additional success-based spending, we are also expanding fiber deployment within our ILEC footprint throughout 2018 and into 2019. Estimating, we’ll cover an additional 50,000 service addresses. In addition to the fiber expansion, we have also invested to meet our obligations under the A-CAM program. Recall, in 2017, we invested $36 million of capital to begin to build the infrastructure necessary to bring services to about 160,000 service addresses. We have builds in progress in all 25 states currently and expect to spend approximately $30 million in 2018. We continue to advocate to the FCC for full funding of the A-CAM program. The FCC has announced additional support to be offered, and we are currently waiting for the specific additional amounts and related build-out obligations. While we are waiting, the FCC Chairman Pai is making his second visit to TDS tomorrow,…

Thank you. I wanted to provide a few brief comments about the HMS business before we go to questions. In terms of financial results, OneNeck continues to experience declining revenues, mostly on equipment sales, and lower adjusted EBITDA. Bookings for monthly recurring revenue, however, were up from the fourth quarter and year-over-year. Additionally, the team is continuing to work on improving systems and processes intended to enhance the customers’ experience. And now Kevin, we are ready to open the call for questions.

Thank you. We will now be conducting the question-and-answer session. [Operator Instructions] Our first question today is coming from Philip Cusick of JPMorgan. Your line is now lives.

Hey guys. I just wanted to follow-up on the wireless space. Have you thought at all yet about the auctions that are definitely coming up at the end of this year in the 24 and 28 gigahertz? And then potentially next year in CBRS and maybe eventually C band? Thank you.

Hi, Phil. Yes, we’ve definitely been giving it a lot of thought. We’ve got our engineers that have both done some tests with the millimeter wave and the CBRS wave with our vendors. And we’re working with some outside consultants and use cases around 5G. I mean, I think, we’ve got a pretty good handle on the performance of millimeter as well as the CBRS. The question is really, getting clarity around the use cases with revenue behind them before you go spend more money.

And do you think there are – there is a use case that justifies millimeter wave in your market?

I think there might be use cases in some of our markets. It’s really going to come down to a combination of size of licensed area that you’re actually buying the millimeters for and how much you’re going to be able to get. I mean, it’s going to be a very use case-specific, I think, from the little bit I know right now.

Okay. And then, Ken, as long as I have you, Slide 8, I like the way you sort of showed the gross activity of handsets flattish year-over-year and churn down. How should we think about churn going forward as we look at your base?

So far, I’m feeling pretty good around what we’re seeing with churn. I don’t see anything that’s dramatically changing it right now. What happens next month when somebody decides to drop their shoe differently than they in the past, who knows? But I’m feeling pretty good about it.

No guarantees. And then last one, if I can. Connected devices, same slide. Is this just seasonality? Or is there a shift in how you look at those devices? Thank you.

Oh, gosh. Oh, big shift. Up until late last year, connected devices were really all about inexpensive tablets that have proven to be a nice sugar high, but really not a lot of economics behind it. You put numbers up, but not a lot of economics, hence, what you’re seeing come out of here. Going forward, it’s more about fixed wireless, it’s more about end-to-end devices, things like that, that have got ongoing longer-life revenue behind them. But you’re going to have to work your way out of the – kind of the tablet high of the past.

Great. Thanks, Ken.

Thank you. Our next question today is coming from Ric Prentiss from Raymond James. Your line is now live.

Thanks, good morning, everybody. Okay, I’ll follow up on Phil’s question Slide 8. When we look at that handset gross adds of 96,000 in the first quarter, Ken, you mentioned first quarter is seasonally light. Can you update us as far as maybe what you’ve seen in April? But also on the year-over-year then in first quarter 2017, wasn’t that when Verizon introduced their unlimited plan, and maybe there was some compression last year because of the competitive environment?

So overall, we are actually a little bit ahead of where we thought we would be right now this year, so I’m very comfortable with where we’re at. First quarter, yes, it’s typically light, light for us. Yes, we had – about a year ago, everything from the launch of the unlimited a year ago in the industry that we only activated at the very, very end of the quarter, what really happened is a matter of kind of volume in the market. If everybody else has got big, big promotions and a lot of noise, we don’t burn through as much, okay? We’ve seen that in the last couple of years in different quarters when we’ve done very well, and we’re going to continue to target our promotions in periods that we think we can be most effective.

How about in April? You mentioned how you were hoping that the rest will recover like it did in 2017. Have you seen that covenants in April?

I’m going to stay with our practice, as we talked about, the results as we get them and in their quarters and that’s – talk about individual months. But as I said, we were ahead of where I thought we would be as we close the quarter, and I’m comfortable with kind of our whole guidance for the year.

Your job not to answer. My job to ask.

I understand, and that’s why it’s called ping-pong. It goes back and forth.

Another question on VoLTE. You mentioned how you’re – you’ve been ramping that up. Any update as far as where you’re at as far as then being able to get roaming business from the two major carriers you have in the past, AT&T and T-Mobile?

Actually, yes, we’re doing well connecting those networks. Every month, we see more markets come on, and so we’ve seen some roaming get turned on for one of those partners. Just in the last couple of weeks, it wasn’t even there a month ago. So the rollout on the roaming side continues to build as expected.

And I assume that’s built into your 2018 guidance, and it would grow throughout?

Absolutely, sir.

All right. And the last question for you, related though, is have you seen any progress from AT&T with their FirstNet project in your territory or maybe T-Mobile with their 600-megahert build-out?

We haven’t seen anything yet, and I’m a paranoid kind of guy. I’m going to keep – we’re keeping an eye on it. We haven’t seen it either on the FirstNet side in terms of self-leasing activity or anything else. So we’re working with people. As I look at it, it’s taken us many years of ongoing investment to build the quality network that we have across our footprint. And that is part of our reputation in our markets and something that isn’t going to be replicated overnight.

Sure. Understood, great. Thanks guys, have a good day.

Our next question today is coming from Sergey from the Gabelli & Company. Your line is now live.

Good morning, guys. Couple of questions, if I could. So obviously, we saw T-Mobile-Sprint merger announcement over the weekend. So if you could share your reaction to this transaction and what impact it may potentially have on U.S. Cellular, if it gets approved. And what the impact would be on competitive environment in your markets potentially, given obviously the fact that they could be building a high-capacity network? What will it mean for you, for your customer base and for your markets?

Well, Sergey, let me start with congratulations. I heard you’re going to spend more time on the other side of the Wall these days going forward. Well, congrats. Gosh, I don’t know the – about the most honest answer I can give you. Tell me if it’s going to get approved. Tell me when it’s getting approved, and tell me what their strategy will be when they get there. From what I see today, I see that, historically, when big announcements like this are made, everybody in those organizations are worried about their job, okay? We’re going to worry about our customers. We’re going to worry about how do we keep serving them. And oh by the way, maybe serving some of their customers who don’t like the reaction they’re getting from people that are worried about their own jobs. Two, now if I read, okay, huge synergies, big dollars that justify it, that’s going to come out of the big markets. In fact, going to come out of what they do in Ames, Iowa and Town Hall. Three, a lot of value is being ascribed to what they can do with the 2.5-megahertz licenses. Well, those are higher in the bandwidth in the PCS licenses, and no one made a business – a successful business out of trying to serve the areas we serve with PCS licenses, let alone 2.5. So I’d say we got a long, long way to go, multiple years before we see what this looks like. But in the meantime, we’ve got one job, and that’s to continue to focus on taking care of people in our markets and doing that every day.

Great. Great. And a related question also, kind of bigger picture M&A-type of question. So I mean, T-Mobile-Sprint is obviously one transaction now there. We also have AT&T-Time Warner. We have cable companies coming to the wireless space, T-Mobile, potentially building out 600 megahertz with or without a merger. So even though, you referenced that the competitive environment is relatively stable. Potentially, it would get more intense again. So in this environment, why wouldn’t it make sense for yourself to become part of a larger carrier, potentially, to compete with those national providers with converged offerings? And if not, how do you guys think you can maximize shareholder value as a regional provider?

So let me start with my ongoing answer, Sergey. Questions about long-term ownership of U.S. Cellular are a question for TDS. We’re going to focus on running our business. To date, as I will cut through all of your different ramifications in your question, I’d say the biggest thread to it deals with kind of perhaps content coming out of some of these mergers in the future. Content is the one area that we continue to watch closely. To date, the different content plays that have been out there have had zero impact on our business. Customers are able to get access to the content they want, when and where they want it and be able to get it quickly and easily on our network. So it’s a potential watch point. It’s one we keep our eye on, but it is one that has not manifested itself whatsoever in our markets today.

Great. And last question on the wireless side. Ken, if you could talk also a bit about your tower portfolio and your efforts to increase tower rental revenues or potential third-party tenancy rates. Obviously, we understand that this is core to your strategy. But what about potentially enhancing that business with third-party revenues?

Yes. Thanks for that question, Sergey. Now that’s an area we completely agree there is big value there, there is something that – we are constantly evaluating different opportunities of what we can do with that portfolio, subject to it not interfering with our network strategy. Those start with a – they start in kind of their life as a foundational part of our network strategy. It allows us to control the quality of our experience. We control that real estate and we get to go up and down wherever we need to go on those cell sites. And so for the 4,000 cell sites that we own out of the total 6,000, there had been revenue opportunities. We continue to capitalize on them, but we do that subject to the critical role that they play in us managing our network. And getting a little bit more revenue is nice, but not if it stops us from delivering on our customer experience and the $3 billion of service revenues that they support. So something we watch very closely. We continue to work it.

Thank you. And a couple of questions for Vicki on the wireline front. If you could talk a little bit about your strategy for fiber build-outs out of the ILEC footprints, how you select those markets and what their sounds – the early results that kind of help you as you develop your strategy.

Sure. I’d be happy to, Sergey. Starting with our fiber strategy, first off, it is about growing the business, and it is about growing broadband, broadband and providing a superior product and service to markets where they have attractive demographics and are willing to buy the superior products. So let’s start first with our Sun Prairie trial. We continue to be very pleased with the success we saw in Sun Prairie, and we are in the first six months of rolling out that market. We are exceeding 50% market share, and that is being driven by pent-up demand for superior broadband products and IPTV services. And so we have decided, as I had announced, to earmark fiber expansion for 2018. And we are focused on markets that have similar growth characteristics, attractive growth – household growth in the markets, exceeding the national average and have attractive demographics and the density that helps make the fiber numbers work.

Great. And the last question on the cable side. What are your current thoughts on the M&A pipeline in cable [indiscernible] and evaluations? Obviously, cable has deteriorated somewhat in the public markets. What are you seeing on the private side? And what are your thoughts on cable acquisitions going forward?

Well, as you know, our objective is still to grow our business, and one way to do that is through cable acquisitions in addition to the fiber expansion that we’re focused on this year. Both are broadband focus. Having said that, the acquisition pipeline, to be fair, has been very skinny. You certainly can see that by the low number of transactions announced in this space at this point in time, but we continue to remain open to deals of various sizes, both small and large, as they make sense for our business. So having talked about our fiber investments, that does not preclude us from pursuing the cable opportunity, which should arise.

Great. Thank you.

Thank you. [Operator Instructions] Our next question is coming from Simon Flannery from Morgan Stanley. Your line is now live.

Great. Thank you. Good morning. Ken, just coming back to the Sprint-T-Mobile deal. I think one aspect of that deal was a roaming agreement that T-Mobile has granted to Sprint. I was just wondering if you had any perspective on what that might mean for you and to a degree to which they’re roaming. Obviously, T-Mobile doesn’t have CDMA ramping. But it’s, as they said, about 20 million phones were capable of using the T-Mo network. So any color on that exposure and thoughts around that would be helpful. And then any updates – it looks like the equity affiliates are doing well. Any updates on the LA Partnership or the performance and dividend flows out of those operations?

Okay. On the roaming side, I don’t think it’s got much of an impact on us whatsoever. We actually have 4G roaming agreements with both of those carriers and cover areas that – there aren’t a lot of the areas that T-Mobile covers that is using our network on. So it’s not like there’s a big market or two or five or 10 that suddenly shift. Rather, I see it as a way for us to continue to grow our overall revenue. We actually have mentioned in the past, we’ve actually put in technology that allows us to move voice one way and data another way. And what that has allowed us to do is not just use CDMA carriers when our customers roam and allows us to handle the data from other carriers. And as we continue to turn on VoLTE, we’re getting non-CDMA carriers voice traffic as well as just organic traffic. So I’m still very encouraged about what I see on the roaming front. Regarding the equity partnerships and kind of our cash flows out of there, let me turn it over to Steve.

Let me take that one. On – most of the increase that you’re seeing is related to the Los Angeles Partnership. And in looking at those financials, we see a couple of things. We have a considerable amount of revenue growth this year in L.A. That’s primarily in the equipment area, just like you see in our numbers. And a sizable chunk of that is related, from what we can tell, to their adoption of the new accounting standard as well as the shifts that we talked about between service and equipment revenue in our own numbers. On the expense side, they’ve had some improvement there as well with a very sizable impact related to the adoption of the new standard, where commission expense previously would be in the current period is now being deferred and amortized. And they’ve also, as we have said, a modest increase in bad debt expense and in some of the other G&A categories.

Our cash flow looks like it’s – one in – our expectations, our dividends are going to flow much like they had last year.

Okay. Great. And just one last thing. You said, Ken, around the handset life, I think you said you are 29 months. You expect that to extend. Where do you think – ultimately, phones break, the batteries die. Where do you think steady state it’s likely to settle out for you and the industry?

Gosh, Simon, I’m not sure. What I know is that we were a little bit later putting in the 30-month life, so we’re just starting to get to our first customer cohort kind of crossing that 30-month life of our EIP contracts. And so the fact that we’re 29-month doesn’t reflect, I think, the full impact, but rather, just kind of the aging of that base. From what I’m hearing from our vendor partners and others, the whole industry could be up closer to 30%, 33%, 34%, 35%. And I’m still bullish on growth.

Great. Thanks a lot.

Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

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