Slide 1: Second Quarter 2012 Results and Guidance
August 3, 2012 Second 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 i
Slide 3: Second Quarter Highlights
Second Quarter Highlights • Revenues up 3%, margins impacted by subsidies and investment spending • Unusual year-over-year comparisons • Interest expense down $22.3 million • Gain (loss) on investment $3.7 million loss versus $13.4 million gain -- $17.1 million swing • Effective tax rate 39% versus
Slide 4: U.S. Cellular
K US. Cellular
Slide 5: Q2 highlights: building awareness and strong ARPU growth
Q2 highlights: building awareness and strong ARPU growth • Increase in retail gross additions, net prepaid additions • Introduced prepaid product in Walmart stores mid-May • Ongoing deployment of 4G LTE network • New postpaid pricing, tiered data plans • ARPU growth from smartphone penetration, Beli
Slide 6: Challenges: churn, capacity, subsidies
Challenges: churn, capacity, subsidies • Postpaid churn remains elevated • Continued iPhone impact • Competitor 4G devices and promotions • Downward migration from postpaid to prepaid • Targeting retention offers to high-value customers • Managing expenses and data growth • Initiatives to reduce/con
Slide 7: Improving the customer experience with 4G LTE speed and capacity
Improving the customer experience with 4G LTE speed and capacity • Initially covering 30% of customers in Wave 1 markets • Reaching 58% of customers in 2012 through Wave 2 • Strong initial sales of 4G LTE devices • 17% of smartphones sold in Q2 • Adding up to 4 more 4G LTE devices in 2012 Samsung Ga
Slide 8: Driving customer growth through expanded distribution
Driving customer growth through expanded distribution • Offering U Prepaid product in 400+ Walmart stores • “Phone in a box” • Seeking more big box distribution opportunities • Improving internal distribution Be where our customers want to shop 8
Slide 9: Introducing tiered data plans
Introducing tiered data plans • Drive customer growth, profitability, ARPU—monetize data growth • Range of tiered data plans • 300MB to 10GB options • Starter plans to attract new smartphone customers • Larger plans to monetize consumption among heavy data users • Promotional unlimited voice/messagi
Slide 10: Building awareness of a better wireless experience
Building awareness of a better wireless experience • Bold marketing and advertising campaign launched mid-July • Encourages frustrated wireless consumers to “break up” with provider and switch to U.S. Cellular • Strong and clear messages differentiate U.S. Cellular’s customer service, network satisf
Slide 11: Increased gross retail and net prepaid additions
Increased gross retail and net prepaid additions Q2 ‘12 Q2 ‘11 Retail gross additions 277,000 226,000 Postpaid net additions (losses) (48,000) (41,000) Prepaid net additions (losses) 20,000 (17,000) Retail net additions (losses) (28,000) (58,000) Total customers 5,799,000 5,968,000 11
Slide 12: Postpaid churn rate elevated
Postpaid churn rate elevated 12
Slide 13: Continued growth in smartphone penetration, ARPU
Continued growth in smartphone penetration, ARPU 13
Slide 14: Financial performance
Financial performance ($ in millions) Q2 ‘12 Q2 ‘11 Service revenues $1,029.7 $1,002.0 Retail Service 889.2 868.6 Roaming 86.4 82.8 Other 54.1 50.6 System operations expense 243.2 227.8 Loss on equipment 117.0 96.6 SG&A expenses 435.1 424.0 Adjusted OIBDA (1) $234.4 $253.6 (1) Adjusted OIBDA is defi
Slide 15: Financial performance – continued
Financial performance – continued ($ in millions, except per share amounts) Q2 ‘12 Q2 ‘11 Total investment and other income $ 9.7 $11.6 Net income attributable to U.S. Cellular shareholders 52.7 74.9 Diluted earnings per share attributable to $0.62 $0.88 U.S. Cellular shareholders Cash flow from ope
Slide 16: 2012 Guidance – as of 8/3/12
2012 Guidance (1) – as of 8/3/12 Unchanged from 5/4/12 Service revenues $4.05 ‐ $4.15 billion Operating income (2) $200 ‐ $300 million Depreciation, amortization and accretion expenses, and asset gains and losses (2) Approx. $600 million Adjusted OIBDA (2) (3) $800 ‐ $900 million Capital expenditure
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Slide 18: Q2 update
Q2 update • Currently serving 5 IPTV markets • Plan for an additional 5 markets in 2012 • USF and ICC reform impact • Vital Support Systems acquisition • Purchased June 11 for $45 million in cash • Vital generated $76 million in revenues in 2011 • Brings IT Solution Provider expertise to portfolio;
Slide 19: TDS Telecom operating performance
TDS Telecom operating performance ($ in millions) Q2 ‘12 Q2 ‘11 Change ILEC $144.1 $149.4 (4)% CLEC 44.2 45.6 (3)% HMS 22.9 6.6 >100% Total operating revenues(1) $208.5 $198.9 5% Operating expenses $149.0 $128.8 16% Adjusted OIBDA (2) $59.5 $70.1 (15%) (1) Reflects intercompany eliminations (2) Adju
Slide 20: ILEC operating performance
ILEC operating performance (in millions) 2 Q’12 2Q’11 Change Residential $ 70.1 $ 70.0 ‐‐‐ Commercial 24.2 24.9 (3%) Wholesale 49.8 54.6 (9%) Total operating revenues $144.1 $149.4 (4%) Operating expenses $90.4 $87.7 3% Adjusted OIBDA (1) $53.7 $61.7 (13%) (1) Adjusted OIBDA is defined as operating
Slide 21: Growth in broadband speeds and penetration
Growth in broadband speeds and penetration Customers Selecting Higher Speeds Speeds Penetration > 5 Mbps 67% > 10 Mbps 21% 21
Slide 22: ILEC voice bundles help to moderate residential line loss
ILEC voice bundles help to moderate residential line loss 22
Slide 23: Importance of bundling on reducing residential churn
Importance of bundling on reducing residential churn Bundle Churn Single Play 1.72% Double Play Broadband 1.26% Double Play Video 0.99% Triple Play 0.54% Customers with more than one service are less likely to churn 23
Slide 24: CLEC operating performance
CLEC operating performance (in millions) 2 Q’12 2Q’11 Change Residential $ 4.3 $ 5.3 (19%) Commercial 34.9 35.0 ‐‐‐ Wholesale 5.0 5.2 (5%) Total operating revenues $ 44.2 $ 45.6 (3%) Operating expenses $39.5 $ 39.1 1% Adjusted OIBDA (1) $ 4.7 $ 6.5 (27%) (1) Adjusted OIBDA is defined as operating in
Slide 25: CLEC managedIP connections increased 85%
CLEC managedIP connections increased 85% 25
Slide 26: HMS operating performance
HMS operating performance (in millions) 2 Q’12 2Q’11 Change Operating revenues $ 22.9 $ 6.6 $ 16.3 Operating expenses $ 21.7 $ 4.7 $ 17.0 Adjusted OIBDA (1) $ 1.2 $ 1.9 ($ 0.7) (1) Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA
Slide 27: USF and ICC Reform: Key components for rate of return companies
USF and ICC Reform: Key components for rate of return companies • Universal Service Fund: intention to encourage broadband deployment by changing existing mechanisms • Intercarrier Compensation: focus on terminating switched access, VoIP and phantom traffic • Compliance: many new reporting requireme
Slide 28: Preserves several key USF components
Preserves several key USF components • Revenues remain mostly intact for Interstate Common Line Support and Local Switching Support • High-cost loop mechanism intact, but adjusted for expense and investment caps • Safety net mechanism eliminated over two years • Partial recovery of Intercarrier Comp
Slide 29: Moves ICC revenues to bill & keep
Moves ICC revenues to bill & keep • Transitions terminating switched access to zero over 9 years • Allows recovery of ICC revenues from 3 sources • Reduced access billings to carriers • New access recovery charge billed to customers • New Restructure Mechanism fund • Confirms VoIP traffic subject to
Slide 30: 2012 financial impacts of the order
2012 financial impacts of the order USF Support • $4 M revenue reduction in USF safety net • Modest changes in High Cost Loop support – no material impact expected ICC Revenues First half • $1.6 M reduction in intrastate VoIP terminating and originating access revenue Second half • Start of restruct
Slide 31: Many items subject to further rulemaking
Many items subject to further rulemaking • Investment/Expense caps on Interstate Common Line Support • Represcription of interstate rate of return • Originating access and transport rates • Broadband build-out requirements • High-cost support in areas with unsubsidized broadband competitor • Broadba
Slide 32: 2012 Guidance – as of 8/3/12
2012 Guidance (1) – as of 8/3/12 2012 Estimate Previous Estimate (2) Operating revenues $850 ‐ $880 million $810 ‐ $840 million Operating income (3) $50 ‐ $70 million $55 ‐ $85 million Depreciation, amortization and accretion expenses, and Approx. $195 million Approx. $190 million losses on asset di
Slide 33: OIBDA reconciliation
OIBDA reconciliation Consolidated Three Months Ended June 30, 2012 U.S. Cellular TDS Telecom (1) All Other (2) Total Operating revenues $ 1,104,400 $ 208,519 $ 10,250 $ 1,323,169 Deduct: U.S. Cellular equipment sales revenue 74,658 Service revenues 1,029,742 Operating income (loss) 84,163 11,285 (4,
Slide 34: Second Quarter 2012 Results and Guidance
August 3, 2012 Second Quarter 2012 Results and Guidance