Slide 1: U.S. Cellular Midwest Market Announcement; TDS Third Quarter 2012 Results and Guidance
November 7, 2012 U.S. Cellular Midwest Market Announcement TDS Third Quarter 2012 Results and Guidance
Slide 2: Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this presentation, except historical and factual information, represents forward-looking statements. This in
Slide 3: Upcoming conferences
Upcoming conferences 12/3/12 – UBS 40th Annual Global Media and Communications Conference, New York 1/8/13 – Citi Global Internet, Media & Telecommunications Conference, Las Vegas 3
Slide 4: U.S. Cellular Midwest market announcement
U.S. Cellular Midwest market announcement • Taking action to improve U.S. Cellular’s competitive position • Continuing to evaluate opportunities to create shareholder value 4
Slide 5: Transaction improves competitive position
Transaction improves competitive position • Enables focus on stronger markets to increase growth and profitability • Remain committed to our customer satisfaction strategy • Transaction Markets not projected to earn adequate return • Significant network investment necessary to remain competitive • A
Slide 6: Terms of the transaction
Terms of the transaction • Price: Sprint to pay $480 million • Markets: Chicago, St. Louis, Central Illinois, Indiana/Michigan/Ohio (see map) • Spectrum: Most of the PCS licenses in these markets • Customers: 585,000 total; approx. 10% of total customers Transition Services Agreements: Terms of up t
Slide 7: Transaction markets
K US. Cellular Transaction markets
Slide 8: Transaction approvals, conditions and timing
Transaction approvals, conditions and timing Approvals • TDS, U.S. Cellular, Sprint boards – RECEIVED • Federal Communications Commission • Department of Justice – Hart-Scott-Rodino • Other typical consents from other government authorities and third parties Conditions • Federal Communications Commi
Slide 9: Selected pro forma information
Selected pro forma information Information for the 9 months ending or at September 30, 2012: Transaction Remaining As Reported Markets Markets Postpaid 5,175,000 488,000 4,687,000 Prepaid 386,000 81,000 305,000 Reseller 247,000 16,000 231,000 Total 5,808,000 585,000 5,223,000 Penetration 12.4% 3.9%
Slide 10: Long-term strategic benefits of transaction
Long‐term strategic benefits of transaction • Initially smaller, but stronger, more focused, more profitable • Lowers capital intensity by avoiding significant investment necessary to upgrade network and acquire spectrum in these markets • Transaction proceeds provide opportunities to strengthen com
Slide 11: Q3 2012 Financial Results
K US. Cellular Q3 2012 Financial Results
Slide 12: Q3 highlights: Attracting new customers, big box success and 4G LTE migration
Q3 highlights: Attracting new customers, big box success and 4G LTE migration • Increase in retail gross additions • 7% increase in postpaid gross adds • 71% increase in prepaid gross adds • Net gain of 19,000 retail customers • 57,000 prepaid net additions • Success in Walmart • Prepaid experience,
Slide 13: Challenges: Postpaid churn, subsidies
Challenges: Postpaid churn, subsidies • Postpaid churn remains elevated • Continued iPhone impact – similar to prior launches • Downward migration from postpaid to prepaid • Targeting retention offers to high-value customers • Device subsidies • Higher costs of 4G LTE devices • Success of Samsung Ga
Slide 14: Building awareness of a better wireless experience
Building awareness of a better wireless experience • Advertising awareness up 40% over prior campaign • Exponential growth in social media reach and impressions • Fully operational social customer service • Localized social media and community-building efforts at the retail level 14
Slide 15: Driving customer growth through expanded distribution
Driving customer growth through expanded distribution • Offering U Prepaid product in 400+ Walmart stores • Gross adds mostly incremental • Postpaid launched on October 15 in 400+ Walmart stores • Seeking more big box distribution opportunities Be where our customers want to shop 15
Slide 16: Improving the customer experience and network efficiency with 4G LTE
Improving the customer experience and network efficiency with 4G LTE speed and capacity • 30% of customers covered in Wave 1 markets • 58% of customers by year end with Wave 2 • Sales of 4G LTE devices strong • 50% of smartphones sold in Q3 • Adding up to 5 more 4G LTE devices in Q4 2012 • CapEx for
Slide 17: Increased gross and net retail additions
Increased gross and net retail additions Q3 ‘12 Q3 ‘11 Retail gross additions 350,000 284,000 Postpaid net additions (losses) (38,000) (34,000) Prepaid net additions 57,000 11,000 Retail net additions (losses) 19,000 (23,000) Total customers 5,808,000 5,932,000 17
Slide 18: Postpaid churn rate elevated
Postpaid churn rate elevated 18
Slide 19: Continued growth in smartphone penetration
Continued growth in smartphone penetration 19
Slide 20: Financial performance
Financial performance ($ in millions) Q3 ‘12 Q3 ‘11 Service revenues $1,036.4 $1,036.6 Retail Service 884.2 871.2 Roaming 106.1 107.8 Other 46.1 57.6 System operations expense 249.2 241.9 Loss on equipment 144.0 122.4 SG&A expenses 438.5 438.7 Adjusted OIBDA (1) $204.7 $233.6 (1) Adjusted OIBDA is d
Slide 21: Financial performance – continued
Financial performance – continued ($ in millions, except per share amounts) Q3 ‘12 Q3 ‘11 Total investment and other income $16.5 $11.2 Net income attributable to U.S. Cellular shareholders 35.5 62.1 Diluted earnings per share attributable to $0.42 $0.73 U.S. Cellular shareholders Cash flow from ope
Slide 22: 2012 guidance – as of 11/7/12
2012 guidance – as of 11/7/12 Before effects of Sprint Transaction (1) 2012 Estimate (1) Previous Estimate (2) Service revenues $4.075 ‐ $4.125 billion $4.05 ‐ $4.15 billion Operating income (3) $200 ‐ $250 million $200 ‐ $300 million Depreciation, amortization and accretion expenses, and asset gain
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Slide 24: Q3 highlights: Focus on HMS, rolling out TDS TV
Q3 highlights: Focus on HMS, rolling out TDS TV® • Focus on sales execution for HMS segment • Business environment difficult • Regulatory impact as expected • Steps to align costs with revenues • Currently serving 7 IPTV markets • Plan for an additional 3 markets in 2012 24
Slide 25: TDS TV: Attracting new subscribers
TDS TV®: Attracting new subscribers • St. Mary’s Georgia, one of seven IPTV markets • Launched in March 2012 • 900 customers – 7.5% of enabled households • 95% of customers selecting triple play • New integrated sales and marketing programs • Majority of customers purchasing the highest tiered packa
Slide 26: TDS Telecom operating performance
TDS Telecom operating performance ($ in millions) Q3 ‘12 Q3 ‘11 Change ILEC $144.1 $151.2 (5%) CLEC 42.5 45.0 (6%) HMS 36.4 17.1 >100% Total operating revenues(1) 220.4 210.8 5% Cash expenses 161.5 139.6 16% Adjusted OIBDA (2) $58.9 $71.2 (17%) (1) Reflects intercompany eliminations (2) Adjusted OIB
Slide 27: ILEC operating performance
ILEC operating performance (in millions) 3Q’12 3Q’11 Change Residential $70.2 $70.4 ‐‐‐ Commercial 24.4 24.3 ‐‐‐ Wholesale 49.4 56.5 (12%) Total operating revenues 144.1 151.2 (5%) Cash expenses 89.4 89.2 ‐‐‐ Adjusted OIBDA (1) $54.7 $62.0 (12%) (1) Adjusted OIBDA is defined as operating income excl
Slide 28: Growth in broadband speeds and penetration
Growth in broadband speeds and penetration Speeds Penetration > 5 Mbps 69% > 10 Mbps 24% 28
Slide 29: Continued growth in ILEC voice bundles, helps to moderate residential line loss
Continued growth in ILEC voice bundles, helps to moderate residential line loss
Slide 30: Importance of bundling to reduce residential churn
Importance of bundling to reduce residential churn Churn Bundle Q3’12 Q3’11 Single Play 1.94% 2.08% Double Play 1.48% 1.47% Broadband Double Play 1.10% 1.25% Video Triple Play 0.64% 0.58% Customers with more than one service are less likely to churn 30
Slide 31: CLEC operating performance
CLEC operating performance (in millions) 3Q’12 3Q’11 Change Residential $ 4.2 $ 5.3 (20%) Commercial 34.5 34.7 (1%) Wholesale 3.8 5.1 (24%) Total operating revenues 42.5 45.0 (6%) Cash expenses 38.5 39.2 (2%) Adjusted OIBDA (1) $4.0 $5.8 (31%) (1) Adjusted OIBDA is defined as operating income exclud
Slide 32: CLEC managedIP connections increased 83%
CLEC managedIP connections increased 83% 32
Slide 33: HMS operating performance
HMS operating performance (in millions) 3Q’12 3Q’11 Change Operating revenues $ 36.4 $ 17.1 $ 19.4 Cash expenses 36.2 13.7 22.5 Adjusted OIBDA (1) $ 0.2 $ 3.3 ($ 3.1) (1) Adjusted OIBDA is defined as operating income excluding the effects of depreciation, amortization and accretion (OIBDA); the net
Slide 34: 2012 guidance – as of 11/7/12
2012 guidance (1) – as of 11/7/12 2012 Estimate Previous Estimate (2) Operating revenues $850 ‐ $860 million $850 ‐ $880 million Operating income $40 ‐ $50 million $50 ‐ $70 million Depreciation, amortization and accretion expenses, and losses on asset disposals and impairment of assets (3) Approx.
Slide 35: OIBDA reconciliation
OIBDA reconciliation Consolidated Three Months Ended September 30, 2012 U.S. Cellular TDS Telecom (1) All Other (2) Total Operating revenues $ 1,140,357 $ 220,417 $ 9,334 $ 1,370,108 Deduct: U.S. Cellular equipment sales revenue 103,987 Service revenues 1,036,370 Operating income (loss) 48,079 10,30
Slide 36: OIBDA reconciliation – continued
OIBDA reconciliation – continued (1) Includes ILEC, CLEC and HMS intercompany eliminations. (2) Consists of Suttle-Straus and Airadigm (as of September 23, 2011), which represents TDS’ Non-Reportable Segment, corporate operations and intercompany eliminations between U.S. Cellular, TDS Telecom and c
Slide 37: U.S. Cellular Midwest Market Announcement; TDS Third Quarter 2012 Results and Guidance
November 7, 2012 U.S. Cellular Midwest Market Announcement TDS Third Quarter 2012 Results and Guidance