United States Cellular Corp USM
Q3 2012 Earnings Call Transcript
Transcript Call Date 11/07/2012

Operator: Greetings and welcome to Telephone Data Systems and U.S. Cellular Third Quarter Operating 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. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Jane McCahon, Vice President of Corporate Relations for Telephone Data Systems. Thank you, Mr. McCahon. You may now begin.

Jane W. McCahon - VP of Corporate Relations, Telephone and Data Systems, Inc: Thank you, Rob. Good morning, everyone and thanks everyone for joining us. I do want to make you aware of the presentation we've prepared to accompany our comments this morning, which you can find on the Investor Relations pages of the TDS and U.S. Cellular websites.

With me today and offering prepared comments from TDS Ken Meyers, Executive Vice President and Chief Financial Officer; from U.S. Cellular, Mary Dillon, President and Chief Executive Officer; Steve Campbell, Executive Vice President and Chief Financial Officer; and from TDS Telecom, Vicki Villacrez, the Vice President of Finance and Chief Financial Officer.

This call is being simultaneously webcast on the Investor Relations' sections of both the TDS and U.S. Cellular websites. Please see the websites for slides referred to on this call including our non-GAAP reconciliations.

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 release and the more extended versions that will be included in our SEC filings.

Shortly after we released our earnings results this morning and before this call, TDS and U.S. Cellular filed SEC Forms 8-K including the press releases we issued this morning. Both companies plan to file their SEC Form 10-Qs later along with an 8-K related to the Sprint transaction. We’ll be attending a number of conferences in the near term including UBS in New York in early December and Citi in Las Vegas in early January. As always, please keep in mind that TDS hasn’t opened our policy. So if you are in the Chicago area and would like to meet with members of the management team from TDS, U.S. Cellular or TDS Telecom, the IR team will try to accommodate you calendars permitting.

I'd like to turn the call now over to Ken Meyers.

Kenneth R. Meyers - EVP and CFO, Telephone and Data Systems, Inc: Good morning and thank you for joining us today. We know it will be a busy day for most of you. We appreciate your time and interest. We’ve been talking for some time now about our ongoing work to identify and assess potential actions to enhance shareholder value.

Today, the team will talk about one more step we are taking to improve long-term returns at U.S. Cellular. We’ve been working on it for some time and it will be a while to complete. In the meantime, we continue to actively evaluate other potential actions.

On behalf of TDS, I’d like to say this transaction has our full support and was approved unanimously by both the TDS Board and the U.S. Cellular Board.

Now, let me get out the way and turn the call over to Mary and the team. Mary?

Mary N. Dillon - President and CEO, United States Cellular Corporation Corp.: Thank you, Ken. This morning we announced that we’ve entered into an agreement to sell certain of our Midwest market to Sprint. The sale includes PCS spectrum and 585,000 customers or about 10% at U.S. Cellular’s total customer base.

I will talk to you first about why we decided to enter into such a transaction and then Steve will discuss terms and financial details. We’re focused on putting U.S. Cellular in a position to accelerate growth and over time improved margins and return on capital.

This transaction allows us to put our focus on markets where we have strong positions and exit underperforming markets. We remain committed to providing our remaining 5.2 million customers with a differentiated wireless experience, which has led to our strong customer satisfaction.

Another important factor in making this decision was a significant investment required to bring a 4G LTE network to these markets, including network equipment and eventually additional sizable investments in spectrum.

Regardless to the economics, however, it was a difficult decision. Our associates in these markets are passionate and dedicated. Throughout the transition process we’ll treat our associates in these markets with the utmost respect. We’ll continue to provide outstanding service to our customers during the transition period as well.

We feel that the transaction at $820 per customer or $1.74 per megahertz pop reflects an attractive valuation.

Beyond these proceeds, we retained our direct or indirect ownership interest in our own tower portfolio and other spectrum in the transaction markets. We also announced this morning that we’ll transition our call center of Bolingbrook, Illinois to a vendor partner effective January 1. This action will allow us flexibility to better manage our call volumes and reduce facilities expense by more than $3 million annually beginning in 2014.

TDS and U.S. Cellular remain committed to the Chicago area. We plan to keep our headquarters here, where we have a talented workforce to support our ongoing operations.

Now, I’ll turn the call over to Steve to discuss the terms of the transaction.

Steven T. Campbell - EVP, Finance, CFO and Treasurer, United States Cellular Corporation Corp.: Thank you, Mary and good morning everyone. I’ll provide a brief overview of the transaction at this point. You’ll be able to find more detailed information in the Form 8-K filing that we’ll be making later along with the purchase and sale agreement that is an exhibit to the Form 8-K.

So first, at closings, Sprint will pay U.S. Cellular $480 million. As Mary mentioned, the sale includes most of the PCS spectrum and 585,000 customers in our Chicago, St. Louis, Central Illinois, and Indiana, Michigan, Ohio markets. The sale also contemplates a number of related agreements, the most significant of which are two transition services agreements, one to cover network operations and the other customer services that under which the terms will provide for U.S. Cellular to continue to operate the network and servicing billed customers for up to two years after the closing.

Sprint will pay U.S. Cellular for these services. Sprint will also reimburse U.S. Cellular for certain costs related to decommissioning of network and employee termination benefits up to a defined cap. U.S. Cellular will be responsible for store closing costs including employee and termination benefits.

The map on Page 7 of the deck illustrates the markets that are included in the transaction. The Boards of Sprint, TDS, and U.S. Cellular have already approved the transaction. We now need approval from the Federal Communications Commission and the Department of Justice. Subject to these approvals and the satisfaction of other customary and negotiated terms and conditions, the closing is expected to be completed by mid-2013.

Moving to Slide 9 then where we show selected pro forma information. The transaction markets account for approximately 10% of our total customers and 11% of service revenues. Postpaid churn in these markets, however, was nearly twice the level of our other markets resulting in a disproportionate share of our subscriber losses.

Entering these markets later in the game generally as the fifth carrier serving these markets, we have not yet been able to achieve a level of penetration sufficient enough to earn an acceptable level of return.

These markets have a penetration of 3.9% overall versus the average of 16.2% for our remaining markets. Therefore this group of markets had lower margins than our core markets and in fact, after all direct and indirect cost including allocations of corporate overhead, they incurred losses.

Due to the accounting treatment for the transaction coupled with the requirements of the transition services agreements any immediate benefit to margins will be difficult to see. Additionally, with only 20 megahertz of spectrum our path to LTE would have been very expensive. In accordance with the accounting requirements under GAAP, we will not classify these markets as discontinued operations. I recommend that review the Form 8-K that we will be filing later, which has more detailed information about the transaction.

Now I’ll turn the call back to Mary to recap the benefits of this transaction.

Mary N. Dillon - President and CEO, United States Cellular Corporation Corp.: So in closing I want to reiterate how this transactional position U.S. Cellular to compete effectively. We’ll be smaller but more profitable. We will be able to focus even more on our target segment in our remaining markets where we have stronger market positions and to provide customers with a great nation-wide network unmatched customer service in rewards and benefits that are unique in the industry.

We will be moving closer to our long-term financial objective of earnings a return on capital equal to our weighted average cost of capital. This transaction also enables us to further enhance shareholder value. We’ll generate fund through this transaction and have retained other valuable assets in those markets. Over the coming months together with our boards we will evaluate the opportunities available for us to strengthen the long-term prospects for our company.

Now I’d like to move to the financial results for the quarter. We had a number of successes and challenges that I'll cover. So turning to Slide 12, in terms of success, we've seen another strong quarter of customer add with postpaid growing 7% and prepaid growing 71% year-over-year. On the postpaid side, this has been driven by a combination of our new marketing efforts that are increasing awareness of our unique proposition, a very strong device portfolio including the launch of the Samsung Galaxy S3 at the same time as other carriers, improved promotional and sales effectiveness and the continued expansion of our 4G LTE network.

We added 57,000 net prepaid customers in the quarter and we attribute our success through the strong performance of the U Prepaid product that we launch in Wal-Mart in mid-May. Our early analysis indicates that most of the activations of Wal-Mart are incremental business, as we're now able to serve the growing number of customers that want to shop for wireless and big box retail environments. Leveraging that relationship, we also began selling postpaid service in over 400 Wal-Mart stores in October.

Our migration to 4G LTE is proceeding smoothly with strong performance in system availability, speed and overall customer experience. Also the adoption of 4G LTE devices is accruing faster than we expected. In the quarter, we sold 267,000 4G devices including smartphones, modems and hot spots. A number of these devices are being sold in 3G markets which means that once the 4G network is launched, customers can experience 4G speeds immediately while the company benefits from much more efficient network and an immediate offload of some 3G congestion.

Now turning on to Slide 13 is some of our biggest challenges in the quarter. Postpaid churn has remained elevated and there are two main drivers of this. First, there is a segment of customers who churn for the iPhone and that trend is continued with the launch of the latest version. Second, in this weaker economy we see price conscious customers migrating from postpaid to prepaid offerings.

To address this issue, we’re doing two things. First, we’re certainly highlighting to our customers the benefits of our cutting-edge devices in the Android platform. In addition, we have enhanced our analytics capability in order to significantly improve our ability to identify potential defactors. We then target these customers with relevant messages and attractive offers to retain them and then in some cases to win back customers, who recently defected. Over time we expect these factors to bring churn down to more acceptable levels.

Device subsidies were another challenge. The good news is that we’re selling both more smartphones, which represented 53% of devices sold in the quarter and more 4G LTE devices driven by the success of the Samsung Galaxy S3. This will provide longer-term benefits in ARPU and network efficiency.

However, the higher subsidies resolving from more smartphone sales and higher cost of the 4G devices hurt profitability in the quarter. Also as expected our profitability is being impacted by a reduction in the ETC revenues, as a result of the phase out of the Universal Service Fund support. As you recall such report is being phased out at a rate of 20% per year beginning in July of 2012. The expected reduction to this high margin revenue stream for the second half of the year is approximately $16 million.

Continuing on the Slide 14, in terms of building awareness of U.S. Cellular and differentiating in the marketplace. We launched our Hello Better advertising and marketing campaign in July. Hello Better was designed a breakthrough to our target customers and highlight the entire U.S. Cellular customer experience, including our key differentiators.

According to our quantitative end market advertising measures, we’re seeing a 40% improvement in awareness over the prior campaign. We’re confident that Hello Better has put us on the right track toward increasing U.S. Cellular’s awareness and consideration among switchers in the wireless marketplace.

Additionally, we’ve driven an exceptional growth in the engagement of our customers and potential switchers through online and social media channels. We’ve dedicated social customer service and sales teams and we are focused on building online communities at the local level as well.

We recently launched an innovative campaign called, Call Someone Who Cares, where we specifically reach out to dissatisfied customers of carriers to let them know in song that U.S. Cellular was the better alternative. It's on YouTube, if you want to take a look.

As we approach the important holiday selling season, we have some compelling, advertising and promotions plan to compete effectively in the marketplace.

As shown on Slide 15, we are very pleased with our Wal-Mart results. This customer growth is largely incremental. Going forward we’ll be looking for additional opportunities to expand and optimize distribution.

Our 4G rollout is proceeding as planned. At the end of the quarter we covered 30% of our customers. We’ve just begun to light up our ways to markets and are on track to reach 58% of customers by year end.

We now expect that by the end of 2013, we’ll cover approximately 87% of our customers. We are preceding these markets with 4G phones so that we can get the benefits as soon as the market has turned on.

In terms of device availability, we have launched the Galaxy S III and the Samsung Galaxy Note II adversely in the same time as other carriers. The GSIII is an incredibly popular device among both switchers and current customers. We saw strong gross add performance in the weeks following the launch. We attribute that to the combination of cutting-edge technology in our unique customer experience. We’re proud of our positive net-add performance for the quarter and confident in our strategic direction and excited about our plans through the crucial upcoming holiday season. At the same time, we are firmly grounded in the challenges we face and are working on a range of initiatives to stabilize our postpaid customer base and improve cash flow.

I will now turn the call over to Steve.

Steven T. Campbell - EVP, Finance, CFO and Treasurer, United States Cellular Corporation Corp.: Okay, picking up on Slide 17, U.S. Cellular’s results for the quarter reflected mixed customer results as we improved postpaid gross additions, but are still challenged with retaining postpaid customers, given this extremely competitive market and the somewhat still sluggish economy.

Prepaid gross and net additions improved significantly due to the success of our prepaid offering through Wal-Mart. Service revenues were flat year-over-year as the impact of higher ARPU was offset by reductions in the average customer base and ETC funding.

Operating cash flow declined primarily due to the loss of high margin ETC funding and los on equipment.

As shown on this slide, third quarter retail gross additions were 350,000, up 23% from 284,000 in the prior year quarter. In the postpaid segment, there was a net loss of 38,000 customers as a 7% increase in postpaid gross adds was offset by an increase in defections.

In the prepaid segment, we did much better than a year ago, adding 57,000 customers. So in total, we gained 19,000 net retail customers in the third quarter this year compared to a net loss of 23,000 last year.

Postpaid churn shown on the next slide increased to 1.72% from 1.55% last year. As Mary already commented, we attribute this increase to the expanded distribution of the iPhone, and aggressive promotions and new plans by the competition. Additionally, we continue to see some migration from postpaid to prepaid offerings.

Slide 19 shows the trends in smartphone sales penetration and postpaid ARPU. During the third quarter, we sold 487,000 smartphones which represented 53% of total devices sold, which compares to the third quarter of 2011 when we sold 356,000 smartphones, about 40% of the total unit sold. 243,000 or 50% of the smartphones sold this quarter were 4G LTE devices.

Smartphones now represent 39% of our postpaid subscriber base, compared to only 26% for the same period last year. While the overall cost of subsidized smartphones, especially the 4G devices is greater, we expect that the higher ARPU and migration of data usage of our 3G network on to the 4G LTE network will benefit our results over time.

As you can see on the graph at the far right, there has been steady upward trend in postpaid ARPU for the past several quarters. We did see a very slight decline in ARPU sequentially, which was primarily due to a decrease in the USF contribution rate that we bill our customers. However, the year-over-year growth that we’ve been achieving right along continued in the third quarter with an increase of 4% and we expect to see both sequential and year-over-year growth in the fourth quarter.

Turning to our financial performance, service revenues for the quarter were $1.036 billion, which is flat with last year. Breaking that down a bit further, retail service revenues were $884 million, an increase of 1% with billed ARPU growing 4% year-over-year.

The inbound roaming revenues decreased about $2 million or 2% year-over-year to $106 million. An increase in inbound data usage was offset by lower inbound voice usage, lower rates for both data and voice, and the loss of some roaming revenue from a market that we sold in the first quarter of this year. The decrease in roaming revenues was offset by savings in outbound roaming expense which is included in our system operations expenses, also due to lower rates.

Looking out, we expect continued growth in data roaming usage, inbound and outbound, but both lower revenues and lower expenses due to lower rates. On a net basis, we expect the lower rates to be neutral to OCF in the short-term but to provide a positive benefit over the long-term.

Other revenues in the quarter were 46 – I'm sorry other revenues were $46 million in the quarter, down 20% from a year early, reflecting a significant drop in ETC revenues as a result of the phase-out of Universal Service Fund support. As Mary mentioned and as you will recall, such support is being phased-out at a rate of 20% per year beginning in July 2012.

System operations expenses of $249 million were up $7 million or 3% year-over-year. This was due to several factors including expenses associated with the deployment of the 4G LTE network, a 2% increase in the number of cell sites and service, and higher on-net data usage as our customers use more data services.

Roaming expense, however, declined a bit as the higher off-net usage was more than offset by lower rates. As data usage continues to grow rapidly, we’ve implemented a number of measures designed to minimize the impact on our expenses.

Loss on equipment for the quarter was $144 million, up $22 million or 18% from last year, primarily as a result of increased smartphone sales and the higher costs related to 4G LTE devices. Average loss per device sold increased year-over-year, due primarily to the shift in mix to smartphones as these devices were 53% of sales versus 40% last year. In total, we sold 37% more smartphones.

We expect that equipment pricing will continue to be very aggressive across the industry, and that our cost will be impacted by the continuing shift in mix to smartphones and the continuing introduction of 4G devices throughout the year. Keep in mind that we’re selling 4G devices in our 3G markets now, so that we can capture the cost savings immediately when we launch 4G services in those markets.

SG&A expenses of $439 million were flat year-over-year as we continue to control these costs as tightly as possible. Operating cash flow for the third quarter of $205 million was down 12% compared to last year's $234 million. The operating cash flow margin was 19.7% compared to 22.5%

Total investment and other income net for the quarter totaled $16.5 million, including earnings of approximately $18 million related to our investment in the Los Angeles Partnership that was up from $17 million last year. Net income attributable to U.S. Cellular shareholders totaled $35.5 million or $0.42 per diluted share versus $62.1 million or $0.73 per share in 2011.

The effective tax rate for the third quarter this year was 34.7% compared to 38.4% last year. That rate was lower this year due to a tax benefit related to a correction of state deferred taxes. For the full year 2012, the effective tax rate is expected to be about 33%.

For the third quarter, we generated cash flow from operating activities of $197 million, down from $301 million last year. Cash used for additions to property, plant and equipment in the quarter was $181 million reflecting significant expenditures related to our 3G and 4G LTE networks, as well as for our multiyear enablement initiatives, primarily our billing system conversion.

Moving ahead, U.S. Cellular's balance sheet remains sound and we have significant liquidity and financial flexibility together with expected cash flow from operations and funds available under our revolving credit facility to meet our financing needs.

At September 30, cash and short-term investments totaled $550 million and we have about $300 million of unused borrowing capacity under our revolving credit agreement.

Our guidance for the full year of 2012 is shown on Slide 22. As you can see, we’ve narrowed the range for service revenues to $4.075 billion to $4.125 billion, and the range for operating cash flow to $800 million to $850 million. We continue to expect capital expenditures of approximately $850 million. Factors impacting our results for the remainder of the year will be the reduction in ETC revenues I already mentioned, higher LOE another selling and marketing expenses associated with heavy promotional activity during the fourth quarter holiday periods and continuing increased expenses related to the implementation of our new billing and operational support system scheduled for implementation in 2013.

As we explained in the footnotes, these estimates are before the effects of the Sprint transaction. We currently estimate that we will incur incremental operating expenses in the range of $30 million to $60 million related to this transaction.

Now I will turn this call over to Vicki Villacrez to cover TDS Telecom’s results.

Vicki L. Villacrez - VP-Finance and CFO, TDS: Thank you, Steve. Good morning everyone. Turning to Slide 24, I would like to give you an update on TDS Telecom’s major business developments and their impact on our outlook for the remainder of the year.

We continue to integrate the operations of our most recent acquisition Vital Support Systems into our growing HMS operations. As I mentioned last quarter, we aim to build on our existing data center infrastructure and strengths in providing hosting and cloud services. We will leverage these capabilities with Vital sales and engineering skills including our suite of products and services to provide customers with an end-to-end solution to their IT needs.

As we continue to learn from the four acquisitions we have made so far, we’ve made a number of organizational changes to better position ourselves to sell into the mid-market and are looking for additional ways to integrate our programs among the businesses.

We fully expect to see these efforts begin to pay off as we enter 2013 as topline growth has not yet met our expectations. This shortfall is a primary reason we have lowered our operating cash flow guidance.

In the third quarter, we began to see the full impact of all the moving parts of the SEC reform order, principally on the ILEC. This includes recovery mechanisms on the revenue side and reduced reciprocal compensation expense, which are reducing the impacts of the declines in revenues resulting from the reform order.

On a net basis, ILEC operations lost $0.4 million in margins for Q3 and $3.8 million year-to-date related to the reform order. However, declines in minutes of use continued and rate of recovery and other components of regulatory revenues decreased margins by $4.7 million for a total cash flow impact of $5.1 million. These impacts have been ongoing and are not related to the reform order.

Our expenses have been growing at a higher rate than our revenues. This is due to several key initiatives we have underway as we move to expand into the new IPTV markets as well as develop our HMS infrastructure and the products and services to grow the HMS operations.

We believe that this investment is necessary in order to be successful in these new ventures. However, additional steps we are taking in the fourth quarter which include targeted reductions in our cost structure should help improve this trend going forward.

With respect to IPTV, we now provide service in seven markets as of September 30. Our market rollout plans continue to move slowly as our more rigorous plant upgrade activity has been needed to enable our copper network and prepare other infrastructure for IPTV services.

By year end, TDS TV will offer service in 10 markets and will pass approximately 65,000 households in total. While in the early stages of our recent launches, we remain excited about our IPTV service, which is meeting our high expectations for customer take rates, and we will look to expand service within these markets in 2013.

As an example of how our IPTV product rollout has been going, let me give you a little color around one market in St. Mary's, Georgia. In large, TDS began to sell and install TDS TV in this exchange, which currently has 11,600 service addresses enabled for IPTV. As of September 30, the market had 900 TDS TV subscribers or about 7.5% of the enabled household.

Our strategy to develop new sales channels and using integrated marketing approach has been very effective in attracting new subscribers, and 95% of TDS TV customers subscribed to the triple play, which delivers the features that customers demand. Almost half of the customers are purchasing the highest tier products we are offering for both Internet speeds and channel packages.

As shown on Slide 26, our hosted and managed services segment drove TDS Telecom's revenue growth through acquisitions. The number of ILEC and CLEC connections continues to decline and losses and high margin regulatory in wholesale revenue streams outpace growth in data, video, managed IP and HMS.

Consolidated cash expenses were up 16% for the period, primarily due to the acquisition effects cross associated with our system improvement activities, the expansion of IPTV and developing infrastructure and new products and services for HMS. All in, operating cash flow for the quarter was $58.9 million, a decrease from the $71.2 million achieved in 2011.

Turning to Slide 27, now let me discuss each segment. ILEC revenue decreased 5% overall. Residential revenues were flat with last year as voice line losses were mostly offset by increases in data connections. ILEC commercial revenues also ended flat as strong growth in managed IP connections, outpaced voice line losses and a small ARPU decline.

In the quarter, wholesale revenues declined $7 million a 12% decrease, primarily as a result of changes in regulatory recovery due to the reform order, wholesale rates and an increase in relative amount of VoIP traffic, coupled with the continued decline in interest statement of per views.

ILEC cash expenses were held flat with last year’s level despite a $2.4 million discrete item recorded in 2011 related to the refund of certain regulatory contributions, which reduced 2011 cash expenses.

Turing to Slide 28; ILEC residential broadband subscribers, increased 1% year-on-year adding to an already high penetration rate to reach 65% of primary residential lines at the end of the period. 69% of these customers are taking speeds of 5 megabits negatives or greater and 24% are taking speeds greater than 10 megabits.

Residential broadband ARPU is trended upwards to $38 as migration to higher speed service offsets competitive pricing pressures. On the residential side, our Star voice packages continue to help us mitigate line loss. At the end of September we had 204,600 customers on these plans or 59% of our residential customer base, which is up from 55% at this time last year, helping to stabilize voice ARPU.

On Slide 30, we continue to emphasize our triple play bundles, voice, data and video. With video offered through DISH Network and increasingly through our own IPTV service, TDS TV. Triple play subscribers now represent 31% of our ILEC residential customers. Churn on our triple play customers continues to remain very low at roughly 1.5% per month.

70% of our residential customers are on a double or triple play bundle up from 66% last year. Churn for a double play customer, while not as low as a triple play is still significantly lower than churn with a single service.

Now turning to the CLEC business on Slide 31; revenues were down 6% as commercial revenues were flat and residential revenues declined in line with our churn expectations as we no longer sell to the residential segment.

On the commercial side of the CLEC, Slide 32, we saw strong 83% growth in our flagship commercial voice and data communication solution, called managed IP, which outpaced our losses in legacy physical access lines and data connection, driving total commercial connections up by 2%.

Turning to the HMS segment, on Slide 33, acquisitions increased revenues by $19.3 million and expenses by $18.6 million. As I discussed earlier, we are investing in the infrastructure, support systems, and development of new products and services causing expenses to be higher.

Slide 34 shows our 2012 guidance. We have tightened our revenue guidance by lowering the top end by $20 million to a range of $850 million to $860 million to primarily reflect lower HMS expectations. We have lowered the range on operating cash flow to reflect the year-to-date results in the HMS business and higher cost as we implement IPTV.

As discussed earlier, we have taken steps in HMS segment to reduce further cost as the integrate across our four acquisitions. We're also planning targeted reduction in the ILEC and CLEC segments as we continue to adjust our cost structure, which will result in additional severance charges in the fourth quarter.

We have tightened our outlook and capital spending to a range of $175 million to $190 million to reflect the spending to-date. Reflecting the changes above, operating income is now estimated in the range of $40 million to $50 million.

Now, I will turn the call back to Jane.

Jane W. McCahon - VP of Corporate Relations, Telephone and Data Systems, Inc: Thanks Vicki. Now, we would like to open it up for questions. I do want to let you know that Mary Dillon had to step out. She has had got some other audience that she needs to speak to this morning, but we’ve asked Dave Kimbell, our CMO, to join us for questions. So, Rob, please go ahead.

Transcript Call Date 11/07/2012

Operator: Ric Prentiss, Raymond James.

Charlie Castillo - Raymond James: This is actually (Charlie Castillo) sitting in for Ric. When you guys talk about that – in the transition markets are actually at an operating loss, would that also be for EBITDA as well?

Steven T. Campbell - EVP, Finance, CFO and Treasurer, United States Cellular Corporation Corp.: Yes, it would.

Charlie Castillo - Raymond James: As you move the, I guess, basically the spectrum on the customers over and you are maintaining the towers, the old CDMA equipment hanging on those towers currently, I guess, you retain ownership of that as well. Is there any way you can sell them or kind of what happens to that?

Steven T. Campbell - EVP, Finance, CFO and Treasurer, United States Cellular Corporation Corp.: As we said, we will be retaining the network as part of the transaction and we’ll operate it to provide service to Sprint during this transition period for up to two years. Working with Sprint will determine to what degree and the timing of decommissioning that network and those assets retain in the ownership of U.S. Cellular and we would certainly attempt to recover all the value that we could have from the network equipment per se. Then we’ll explore our options that we might have with respect tower portfolio.

Charlie Castillo - Raymond James: Can you actually tell us what the cap is that in terms of what Sprint can pay for this (reimbursals) and to operate the network?

Steven T. Campbell - EVP, Finance, CFO and Treasurer, United States Cellular Corporation Corp.: Well, again, at some point I’ll encourage you to look at the SEC filings that will have a fair amount of detail of what’s included in the (GAAP). But generally speaking, it’s designed to cover cost such as sell-side lease and termination expense, termination related to the backhaul and so forth and there is a cap of $200 million on those expenses.

Charlie Castillo - Raymond James: Final question in general, as we look at your overall tower portfolio now that you’re around 4500 towers. Could you tell us kind of what’s the design capacity of those towers for tenants, like are they two tenant towers or four tenant towers?

Kenneth R. Meyers - EVP and CFO, Telephone and Data Systems, Inc: I can’t answer that question as we sit here today, the portfolio consists of multiple designs from overall 250, 300 foot tower some urban model pole. So there isn’t a nice clean average I can give you on that.

Operator: Ric Prentiss, Raymond James.

Ric Prentiss - Raymond James: I guess, I’ll just jump in for one more then. For the naming rights on the ballpark, when does that contract expire and kind of what are your thoughts on that as basically I guess you no longer need to market in Chicago going forward?

David Kimbell - SVP, Marketing and Chief Marketing Officer, United States Cellular Corporation Corp.: It’s Dave Kimbell. We have a long-term relationship with White Sox. We continue to be committed to Chicago, we’re headquartered in Chicago even after this transaction we’re going to have 1,400 associates in Chicago. So that relationship is not part of this deal and we’ll not be changing.

Operator: Robert Schiffman, Credit Suisse.

Robert Schiffman - Credit Suisse: Could you just talk a little bit about plans for the balance sheet, balancing what you’re considering in terms of enhancing shareholder value if credit ratings and debt issuance and alike?

Steven T. Campbell - EVP, Finance, CFO and Treasurer, United States Cellular Corporation Corp.: So number one let’s start with code of the companies, both companies financing philosophies, maintaining an investment grade rating. It's something that we’ve said many, many times something frames a lot of the decision we look at and that just gets back to a belief that I could you just create our access to markets when most needed, number one. Number two, the Company has refinanced a lot of its debt, there is with the markets being where they’re at today, there might be other debt that is at a higher price today than what might be in the market. I think we’re going to continue to look at items like that, but no major changes are on the horizon right now.

Robert Schiffman - Credit Suisse: As a separate follow-up what are the additional assets for sale, is there anything else outside of towers from a spectrum perspective, you’re looking to either sell or acquisitions that might provide tuck-in opportunities?

Steven T. Campbell - EVP, Finance, CFO and Treasurer, United States Cellular Corporation Corp.: Again, one we constantly are in the market looking at a various opportunities that are out there. Number one. Number two we continue to look at our own portfolios as we did here to see if there are places that we can strengthen that. Three, as we talked about at the TDS level, we continue to look for areas where we can strengthen the Company and as that work (evolves) and comes to fruition, we’ll be out talking to people, but it is up in the – that I have got today to talk about that area.

Operator: There are no further questions at this time. I would like to turn the floor back to management for closing comments.

Mary N. Dillon - President and CEO, United States Cellular Corporation Corp.: We know today is an extremely busy. I’d like to thank you for your participation and please let us know any follow-up questions. We’ll be available for your call. Thanks again.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.