美國無線通訊 (USM) 2010 Q4 法說會逐字稿

Greetings and welcome to the TDS and US Cellular Fourth 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.

(Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Jane McCahon, Vice President of Corporate Relations for TDS.

Thank you, Ms.

McCahon, you may begin.

Thank you, Christine.

Good morning and thank you everyone for joining us.

I wanted to make you all aware that we've prepared a presentation to accompany our comments this morning which you can find next to the Webcast icon on the Conference Call page on our IR website.

With me today and offering prepared comments are Kenneth Meyers, Executive Vice President and CFO at TDS; Mary Dillon, President and CEO at US Cellular; Steve Campbell, Executive Vice President and CFO at US Cellular; Dave Wittwer, President and Chief Executive Officer, TDS Telecom; Bill Megan, Executive Vice President and CFO at TDS Telecom.

And we've also asked Alan Ferber, the EVP of Operations at US Cellular to join us for Q & A.

This call is being simultaneously Webcast on the Investor Relations sections of both the TDS and US Cellular websites.

Some information during this call and subsequent Q & A periods 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 releases and the more extended versions included in our SEC filings.

Shortly after we released our earnings results this morning, and before this call, TDS and US Cellular filed SEC Form 8-K current reports including the press releases we issued this morning.

Both companies plan to file their SEC Form 10-K Annual Reports over the next day or two.

As you can see on slide 3 we'll be attending or presenting at the following conferences over the next quarter or so.

March 2, we'll be at the Morgan Stanley conference in San Francisco, March 7, the Credit Suisse conference in Miami, March 22, we're hosting Analyst meetings during the CTIA conference in Orlando, and May 16, we'll be at the JP Morgan conference in Boston.

If you'd like to meet with us at any of these conferences please let me know and I'll try to accommodate you if at all possible.

Please keep in mind that we have an open door policy so if you are in the Chicago area and would like to meet with members of Management from TDS, US Cellular, or Telecom, the IR team will try to accommodate you, calendars permitting.

And with that, I'll turn the call over to Ken Myers.

Thank you, Jane.

Good morning, everyone.

TDS Telecom produced solid results in 2010 with revenues and operating margins up.

Going into 2011, the Company has a number of additional opportunities in terms of hosted managed services, deeper penetration of its commercial services, like managed IP, and rolling out Broadband to rural markets as part of the broadband stimulus program.

Bill Megan and Dave Wittwer will discuss these initiatives in further details including the resulting increase in capital investments.

At US Cellular 2010 was a year of transition and accomplishments.

In June, Mary Dillon joined the Company as the new CEO.

In July, the first Android phones were introduced and then in October, the Company launched the Belief Project, further differentiating itself in the marketplace, and ended the year with nearly 1.2 million customers on these new Belief Plans.

2010 financial results were disappointing as the cost of subsidizing the transition to these new Smartphones and expenses related to our enablement initiatives weighed on profits.

The entire Company is focused on continuing to build on the opportunities Mary and Steve will discuss in a moment.

At the enterprise level, we ended 2010 with a strong balance sheet that provides us a great deal of flexibility and, as you can see, we will be putting more of that money to work this year.

On slide 5, you see that our treasury folks were busy.

We issued $225 million of 49-year debt at 6.785% in the quarter, and redeemed $217.5 million of the 7.6% debt we had outstanding.

We also replaced our revolving credit agreements in the quarter.

The amount of the facilities stayed the same at $400 million for TDS and $300 million for US Cellular and we extended the maturity for five more years and lowered pricing.

We'll continue to look at the TDS capital structure and importantly, how we can reduce the discount on the TDS special common shares.

Turning to slide 6.

In the quarter, TDS bought back approximately 610,000 special common shares for about $17.5 million.

For the entire year, we bought back nearly 2.4 million shares for almost $168 million.

As we had said before, we plan to be measured in this three-year authorization.

At US Cellular we repurchased nearly 266,000 shares for approximately $12.3 million in the quarter, and about 1.2 million common shares totaling about $52 million for the year.

During 2010, TDS increased the dividend for the 36th consecutive year.

Note on the Income Statement that we recognized a discrete date income tax benefit of about $7 million at US Cellular and $5 million at the TDS level.

That's what really drove the effective rate for the year down to 33.9% and 32.8% at US Cellular and TDS, respectively.

On the regulatory front the FCC adopted a net neutrality order in December.

Like many in the industry, our concern has been the development of a set of rules that could constrain our ability to proactively manage congestion on our network or limit our ability to offer managed IP based services.

We still have some concern with the rules as adopted but we note that the order is already subject to litigation.

On the positive side we are encouraged that the FCC recognized the unique challenges of operating Wireless networks and provided some flexibility in the application of its new rules in the wireless space.

The other regulatory item to note is universal service and Inter-carrier compensation reform.

A few weeks ago, as everyone knows, the FCC issued a very long complex notice of proposed rule-making addressing these two issues.

The notice is multi-faceted and there are both positive elements and risks for US Cellular and TDS Telecom.

We are actively participating in this debate with the goal of achieving a sustainable framework that supports both of our companies in deploying needed Broadband and Voice services throughout rural America.

And, before I turn the call over to Steve Campbell, I wanted to congratulate all of the associate and team members at US Cellular and TDS Telecom for being named the J.D.

Power 2011 Customer Service champions, two of only 40 companies to have earned this distinction this year.

To qualify for inclusion on this elite list, companies not only must excel within their own industries but also must stand out among 800 leading brands in 20 major industries of value add by J.D.

Power.

This group of 40 represents the highest performing companies that deliver service excellence to US customers both within their respective industries and across all industries measured.

Providing an excellent customer experience is at the core of our mission and to have both our companies recognized for this honor is a testament to their commitment to that value.

With that, let me turn the phone call over to Steve Campbell.

Steve?

Thank you, Ken, and good morning, everyone.

As we informed you a couple of weeks ago, business conditions were very challenging for US Cellular in the fourth quarter.

The economy was sluggish for most of the quarter although retail sales during the holiday selling season were up slightly from the previous year and industry competition was very intense with respect to both service-plan pricing and handset subsidies.

As you can see on slide 9 of our presentation, retail gross additions were 292,000 in the fourth quarter compared to 354,000 last year, a decline of 62,000.

In response to disappointing sales during the first several weeks of the quarter, we introduced a number of aggressive promotions designed to attract new customers.

These promotions did in fact produce a nice lift in sales in December with the result that December was our strongest month of the year for gross additions.

However, overall customer activity for the full quarter was still disappointing.

The net effect in the postpaid segment was a loss of 10,000 customers for the quarter compared to a net gain of 26,000 customers last year.

And in the Prepaid segment, we experienced a loss of 11,000 customers during the quarter compared to net additions of 13,000 last year.

So in total, we lost 21,000 net Retail customers in the quarter this year compared to additions of 39,000 retail customers last year.

Moving to slide 10.

On the positive side, we achieved improved churn rates for both Postpaid and Prepaid customers.

Postpaid churn improved to 1.5% in the fourth quarter of this year from 1.6% last year.

We continue to see benefits from the growing level of family plans which now represent 67% of Postpaid subscribers and from the exceptional value that we provide to customers, value such as our new Belief Plans, early upgrades to data capable handsets, and innovative programs like battery swap and overage protection.

We also believe that our expanded handset portfolio which now includes a variety of Android power devices and our first Tablet has contributed.

Prepaid churn improved to 6.9% from 7.2% last year, clearly not where we would like it to be, but better.

During the quarter, we launched more competitive rate plans with smaller buckets of voice minutes responding to the ongoing changes in how customers are using these devices in the Prepaid segments.

Overall, our financial results for the fourth quarter fell below our expectations due to the strong response to the promotional actions we took to stimulate sales late in the year.

As we announced a few weeks ago, these promotions drove growth in Smartphone penetration and the number of customers using data services.

Our Smartphone sales and penetration can be seen on slide 11 of the presentation.

During the fourth quarter, we offered 13 Smartphones and one Tablet and sold almost 400,000 of them, which represented 40% of total devices sold.

This compares to the fourth quarter of 2009 when we had 10 Smartphones and sold 154,000 of them, or 15% of the total units sold.

Smartphones now represent almost 17% of our postpaid subscriber base compared to only 7% at the end of 2009.

While our near-term profitability was impacted, it's expected that average revenue per customer, or ARPU, will benefit over time from the inclusion of these devices in the subscriber base.

Please note that we've refined our metrics around devices.

Whereas in previous quarters we spoke about Smartphones and other data-centric devices which counted any device that required a data plan, we now think it's more clear and comparable to provide metrics that are solely for Smartphones, meaning those devices that run on an operating system such as Android, Blackberry, or Windows Mobile.

We have provided historical comparison in our Press Release tables and you can see the trends in both Smartphone uptake and penetration here on slide 11.

Let me turn now to our P & L which is summarized on slide 12.

Service revenues for the quarter were $992 million slightly higher than last years $985 million.

Breaking that down a bit further, retail service revenues were fairly flat at $865 million.

Competition on service plan pricing over the past several quarters has put a lot of downward pressure on Voice revenues.

However, Data revenues continue to grow very well and helped offset the decline in Voice revenues.

As a result, as shown on slide 13, Retail service ARPU for the quarter of $47.41 was up from $47.07 a year ago, despite the significant downward pressure on voice pricing and the overall competitive environment.

We currently still have some visibility into the Voice versus Data revenue trends, but as we continue to add customers to our Belief Plans which bundle Voice and Data together, that distinction between Voice and Data will become more dependent on allocations and thus less apparent.

I should also point out that ARPU for the fourth quarter would not yet reflect the impact of our strong sales of Smartphones in the quarter as the majority of those sales occurred later in the quarter.

Going back to slide 12 now.

We have anticipated, now that we have cycled through the impact of the Verizon Alltel merger, inbound roaming revenues increased for the second quarter in a row growing 9% year-over-year to $68 million.

The increase is primarily a result of increased data traffic.

ETC revenues were $44 million compared to $42 million a year ago.

Subject to any changes that the FCC might adopt in connection with its recent notice of proposed rule-making on universal service reform or otherwise, we expect ETC revenues to be approximately $35 million over the next couple of quarters.

Moving on to costs and expenses.

The net loss on equipment for the quarter was $159 million up $22 million from last year.

This was primarily due to a 22% increase in the average subsidy per unit sold which reflects both more aggressive promotions and an increase in the average cost per unit due to a shift in mix to devices with expanded capabilities such as Smartphones.

As I mentioned earlier, Smartphones represented 40% of all device sales in the quarter and while the immediate drag on earnings was negative, customers using these devices have higher ARPU.

System operations expenses of $216 million were up $14 million or 7% year-over-year.

This was due in part to a 5% increase in the average number of cell sites and service as well as higher expenses related to increases in customer data usage.

Over the past year, total data network usage increased over 300%.

Selling, General and Administrative expenses of $475 million remained fairly constant year-over-year.

Although we definitely incurred higher advertising expenses related to the launch of the Belief Project, and increased costs related to the multi-year initiatives that were launched in 2009, we achieved reductions in employee costs, bad debt expense, and in other areas that in aggregate were offsetting.

Operating cash flow for the quarter of $141 million was down 18% to last year's $173 million and the operating cash flow margin for the quarter was 14.3% compared to 17.5% last year.

On slide 14, we show our financial results below the operating income line.

Total investment in other income net for the quarter totaled $11.4 million, including earnings of approximately $15 million related to our interest in the Los Angeles partnership.

Interest expense was $13 million down$ 6.5 million year-over-year, reflecting a change in estimate related to interest on past sales tax liabilities and the redemption of our 8.75% senior notes in December 2009.

Net income attributable to US Cellular shareholders totaled $6.8 million or $0.08 per diluted share versus $6.6 million or $0.08 per diluted share in 2009.

The decrease reflects lower operating income and a lower effective tax rate.

As shown in the press release, this quarter we generated cash flow from operating activities of $290 million compared to $244 million last year, and net of capital expenditures of $203 million, free cash flow of $87 million which was up 57% from $55 million in 2009.

US Cellular' balance sheet remains very 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 December 31, cash and short-term investments totaled $441 million and we have about $300 million of unused borrowing capacity under our revolving credit agreement.

I'll now turn the call over to Mary Dillon.

Mary?

Thank you, Steve.

Now moving on to slide 15.

What I'd like to do this morning is spend most of the time on how we are viewing 2011.

Our priorities may draw opportunities as well as challenges, and then we'll finish with how we see the year playing out in terms of financial expectations.

But first let's take a moment to look at what we accomplished in 2010.

I'm extraordinarily proud to lead this Company and its 9,000 talented associates who are so dedicated to providing our customers with an exceptional wireless experience and that's exactly what they did in 2010.

While our financial results fell below expectations, we did have several meaningful accomplishments that will position us for future growth.

The preparation and training behind this successful launch of the Belief Project was a significant effort and executed flawlessly.

The introduction of Android platform devices has provided us with the most competitive and exciting device portfolio we've ever had.

And finally, we're being recognized at a national level for our outstanding network quality and customer service.

For example, "Consumer Reports" named us as the Best Postpaid Wireless Carrier in the nation and we won the J.D.

Power award for Network Quality in the North Central region for the ninth and tenth consecutive times.

Turning to slide 16.

As a back drop to our discussion about this year, it's important to review how we're viewing both the overall economy as well as the competitive landscape.

From our perspective in the markets we serve, business conditions continue to be very challenging.

The holidays brought some improvement with slightly more retail spend than the previous year.

Last week, the Fed upgraded its economic growth forecast for 2011 but expressed concern about the lack of momentum in the Labor market.

Persisting high unemployment will continue to cause consumers to be cautious with their spending and to seek the greatest value for their money.

Therefore, we've not Incorporated any significant lift from an improving economy into our projections.

We continue to see intense competition within the wireless industry.

Industry growth rates have been declining since 2007 as penetration now nears 96%.

Industry competitors, including US Cellular, continue to improve churn rates which in turn reduces the pool of available switchers.

Carriers continue to update their pricing in terms of offerings and features and combined with growth and Family plans continue to pressure ARPU.

And, of course, larger carriers continue to leverage device exclusivity and availability and aggressive device pricing to drive customer growth.

Overall advertising spend remains quite high.

Finally, the rates and noise around technology deployment, specifically around 4G continues to heat up.

So turning to slide 17.

While both the economy and competitive landscape present formidable challenges, we're cautiously optimistic about our ability to grow both our top line and bottom line in 2011.

The foundation we're working from is solid.

We believe we have and will continue to differentiate US Cellular in the marketplace based on our focus on customer satisfaction.

The fact that US Cellular ranked first in overall satisfaction among all postpaid wireless carriers in the United States, and our recent naming as a J.D.

Power 2011 Customer Service champion, really validates that our approach resonates with customers.

We need to build on that, but do so in a cost effective manner.

The Belief Project is helping to expand US Cellular' differentiation in the marketplace and will enable us to drive incremental gross adds, improved churn, and higher ARPU over time.

We've spoken about our expectations for the Belief Project in waves.

First, we expect our current customers to migrate to the Belief Plan and, as we said, that is not only on track but occurring faster than we had expected.

At year-end, nearly 1.2 million new and existing customers were on Belief Plans.

That figure is now up to 1.5 million.

This is critical because one of the keys to attracting new customers to US Cellular in the future is taking what's always been a loyal base of customers and converting them into vocal advocates for US Cellular, unleashing word-of-mouth support for our brand.

On top of this, we're working to increase awareness through enhanced marketing messaging, media effectiveness, and improved sales effectiveness.

While we had a successful launch, we've identified a number of areas we can strengthen and amplify as we continue to build awareness in the markets we serve.

The Nationwide Bundle Belief Plans are designed to compete by offering great value while at the same time providing customers with compelling reasons to move to higher ARPU plans.

So another encouraging sign is that, as our customers migrate to these new plans, they're selecting more of the premium price plans than we had anticipated, which bodes well for ARPU growth this year and gives us confidence that consumers, when fully aware, understand the underlying value created in the bundles.

As we noted when the Belief Project was launched, it's not a static program but a platform we will use as a foundation to continue to evolve and push our strategic advantage.

So expect to see continuing innovation.

Slide 18 shows the other important driver of ARPU growth which is the extraordinary uptake we've seen in Smartphone adoption and thus, data penetration and usage.

Our device line-up is as competitive as ever, and what we see coming down the road for this year is even more exciting.

We plan to introduce at least 24 new devices in 2011 with over half of them being Smartphones.

We'll carry not only Android devices including Tablets, but Windows 7, as well as Blackberry devices.

Our challenge, as was evident in the fourth quarter, is to maintain a balance between our desire to get these attractive devices into our customers' hands versus the steep costs of subsidization.

One development we expect to offset this pressure somewhat is the introduction of a number of lower-priced Smartphones into the line-up.

We're already selling Smartphones with a sub-$200 cost and we see opportunity to further reduce costs as the year progresses.

Moving to slide 19.

Also helping to drive top line growth in 2011 is continued growth in roaming revenues, as data roaming traffic builds and we benefit from new agreements to provide GSM roaming services to other carriers.

In order to translate our expected increase in revenues into improved margins, we know we must tightly manage costs.

We are looking at all areas of spending and expect to be able to talk more about specific opportunities as the year progresses.

At the same time, we're looking for ways to operate more efficiently, we'll continue to fund our enablement initiatives as those are critical to our long term success.

Moving to slide 20.

I'd like to spend some time now addressing our technology path and how we see that evolving.

Given the projected growth in Data penetration and usage and how important that is to our overall success, we'll continue to monitor closely an investment capacity sufficient to maintain our high quality network experience.

The evolution of 4G is top of mind and we understand it will become [table stakes] from both the competitive and operational standpoint.

Our priority for 2011 is to be in a position for the end of the year to be ready to roll LTE out at whatever pace we determine necessary and appropriate.

In order to achieve this level of readiness, we need to successfully complete our technical trials, select a vendor, and begin preparatory infrastructure work.

I have the utmost confidence in our engineering team we will accomplish this work on time and on budget.

Steve will now walk you through our financial expectations for the year.

So our guidance for the full year 2011 is contained in today's Press Release and also shown on slide 21 of our presentation.

As you can see, we're projecting service revenues of $4.0 billion to $4.1 billion, operating cash flow of $775 million to $875 million, depreciation, amortization, and accretion of approximately $590 million, which then leads to operating income of $185 million to $285 million and capital expenditures of approximately $650 million.

I should note that this guidance is based on US Cellular' current Technology plans.

New developments or changing conditions in the Wireless industry, such as the rate of growth in data usage, or the rate of deployment of 4G long term Evolution technology by other carriers, could affect US Cellular' plans and therefore, our capital expenditures and operating expenses.

Other factors influencing our current thinking about 2011 results include significant risks related to service plan pricing and equipment subsidies, and while we fully expect the Belief Project to attract new customers over time, the degree of contribution during 2011 is a bit uncertain right now.

In closing, I'd like to reiterate our excitement about US Cellular' future.

Slide 22 summarizes my earlier comments regarding our 2011 strategic priorities.

We believe the Belief Project provides the right platform for us to compete and build our subscriber base in a maturing industry.

We're strengthening our advertising to communicate our Network quality and we will continue to launch very competitive devices.

In addition, we'll differentiate via our keen focus on customers delivering benefits that matter and exceptional customer service.

Now I'd like to turn the call over to Bill Megan and Dave Wittwer for a discussion of TDS Telecom's results.

Bill?

Thank you, Mary.

Good morning, everyone.

As you saw earlier this month, TDS Telecom had a solid fourth quarter which produced results for 2010 coming in toward the top end of our guidance.

Driving this performance was continued growth in speed data, initiatives to stabilize revenues and line losses, and cost control efforts.

I will provide a brief review of the quarter and then turn the call over to Dave Wittwer, who will outline our strategic priorities for 2011.

As you can see on slide 24, for the quarter, TDS Telecom's combined ILEC and CLEC revenues increased 0.5% from last year and operating cash flow grew commensurately.

ILEC revenue grew 2.7% with high speed data and our HMS acquisitions more than offsetting declines in voice revenues and network access revenues.

CLEC revenue declined 6.3% in line with our plan to limit the investment in new residential customers.

Turning to slide 25, ILEC data revenues increased 23% in the fourth quarter, driven by high-speed data subscriber additions and also our acquisitions of VISI and TEAM which provide hosted and managed services.

High speed data subscribers grew 9% year on year.

We continue to attract healthy levels of new customers and they are taking higher speeds which is helping to support ARPU.

Our high speed data penetration over all access lines is now at 45% up 6 percentage points from last year.

Residential DSL ARPU remains stable, yet a bit over $36 as migration to higher speed service offsets competitive pricing pressures.

76% of our customers are taking speeds of 3 meg or greater up from 61% a year ago.

The decline in ILEC voice revenue was due to physical access line loss, as you can see on slide 26, up 5.3% and slightly lower ARPU driven by bundling discounts.

Our Star Voice packages continue to help us mitigate line loss.

At year-end, we had 171,000 customers on these plans, which are 46% of our residential customer base, up from 26% at this time last year.

We now have 58% of our residential customers on some type of Voice package.

On slide 27, we continue to emphasize our Triple-Play bundles; Voice, Data, and Video; with Video offered primarily through our partner, DISH Network.

We added 2,400 net Triple-Play subscribers in the quarter bringing our penetration of residential lines to 25%.

We know the importance of bundling and reducing churn.

Churn on our Triple-Play customers is very low at roughly 0.5% per month.

We have had measurable success with our bundle offerings with 62% of our residential customers on a Double- or Triple-Play bundle, up from 56% last year.

In the Commercial segment, slide 28; we continued to lead with our hosted IP service we call managed IP.

For both ILEC and CLEC, we now have 27,000 stations installed, an increase of 17% sequentially and double over this time last year.

Turning to the P & L on slide 29, consolidated cash expenses were up just 0.3% for the period.

We have maintained our focus on cost control and continue to see greater efficiencies throughout our organization.

Lower expense in the CLEC is in line with fewer residential customers.

All in, operating cash flow for the quarter increased to $69 million for a margin of 34.7%.

Slide 30 shows five years of capital expenditures.

Capital expenditures were $61.9 million for the quarter, up substantially from last year, but in line with our annual guidance.

We've continued to shift our capital spending to areas that support our Broadband and Network strategies.

In December, we announced the acquisition of TEAM Technologies for $48 million.

TEAM, which operates data centers in Wisconsin and Iowa, is our second HMS deal and we continue to evaluate acquisition opportunities in this space as well as in our more traditional small RLEC markets when there is good strategic fit and price levels can be justified.

I'd now like to turn the call over to Dave Wittwer, CEO of TDS Telecom to share with you our plans for 2011.

Dave?

Thanks, Bill, and good morning, everyone.

I haven't spoken on one of these calls for quite some time and I must say I'm particularly excited to be here to talk to you about TDS Telecom strategy and expectations for 2011 and beyond.

But first, let me give you a brief recap of our accomplishments in 2010.

We continue to increase both the penetration of Broadband into our customer base, as Bill mentioned, now reaching 45% of our ILEC households, and we are pushing higher speeds out to our customers.

And by bundling our products and services we have mitigated access line loss and reduced churn.

Through a tremendous effort coordinated throughout the entire Company we were successful in being awarded $136 million in Federal Broadband stimulus projects that will enable us to reach some of our most remote customers with high quality broadband service.

On the Commercial side, we've acquired two companies with talented employees and valuable assets that will help us expand our hosted and managed service offerings.

And lastly, we were able to accomplish this while generating some modest top line growth and margin expansion.

I'd like to provide the back drop for both the economic climate we expect to operate in as well as a quick look at the competitive landscape.

I'm on slide 33.

We do expect some modest growth in the economy overall but many of our commercial markets were hit hard by the recession and their recovery will take time.

Until unemployment begins to show meaningful improvement, consumers will continue to be cautious with their spending.

Looking at the competitive landscape, we expect cable competition to continue to expand in our markets at a rate similar to the past two years.

We currently compete with cable in more than two-thirds of our households and believe our commitment to aggressively pushing faster speeds out to our customers, offering attractive bundles of services, and providing excellent customer service has allowed us to gain a leading market share over cable, a position we aim to expand.

And Wireless substitution continues to be a formidable competitive threat.

So looking at our plans for 2011, it makes sense to do so from both a Consumer and a Commercial perspective.

Our Consumer strategy on slide 34 is to continue to leverage our strong customer relationships, innovative product and service development, and investment and network and broadband capabilities to build market share.

Advancements in Copper technology now enable us to cost effectively offer high speed data to more and more customers.

Bundling our Data products with our flexible Voice packages and Video, more on that in a minute, is a vital component of our strategy.

Completing the bundle results in a significant step down in churn which is critical to building market share and improving margins over time.

As you know, we have mostly used DISH Network as our primary means of providing the video element of our Triple-Play and that has worked well given the rural nature of our markets.

We have had our own IPTV service in two test markets for over two years now with some real successful penetration results.

So at this time, with the technology advancements and our experience in Tennessee, we are preparing to expand our own IPTV offerings in addition to the DISH product.

Much of 2011 will be spent readying our network and organization, but as of today, we would expect some small additional market launches late this year.

Looking out over the next few years we believe the addition of IPTV will not only add a new layer of revenue growth but will enable us to drive deeper penetration levels throughout our ILEC footprint.

In the Commercial segment, on slide 35, we will continue to build on momentum generated by our flagship offering, managed IP.

Leveraging our entry with that product, we will continue to introduce new bundled and integrated applications that provide our business customers with secure and reliable internet access, secured data connections, and advanced voice services with innovative Voice over IP features.

Our goal is to be a valued, trusted business partner to high-value Commercial customers.

This is where we see the hosted and managed service offerings as a natural extension of what we are already providing to our customers.

We have completed two acquisitions and expect to do more.

We expect to build out a comprehensive portfolio of services and capabilities including co-location, managed services, hosted services, cloud services, and business solutions to leverage our current customer base as well as add new ones.

And finally, as part of our commitment to bringing critical high speed data services to our rural communities, we will mount a significant effort to complete the projects for which we were awarded Broadband stimulus funding under the Recovery Act.

The RUS approved 44 applications for a total of $136 million.

We will receive $105 million in Federal grants and we will provide $31 million of our own funding.

We expect to complete these projects over the next 24 to 36 months.

Next, I'd like to ask Bill to complete our prepared remarks by reviewing our 2011 guidance.

Thank you, Dave.

As shown on slide 37, we expect revenue in the range of $780 million to $810 million, operating cash flow of $260 million to $290 million, depreciation and amortization of approximately $185 million, and this leads to operating income of $75 million to $105 million.

We expect CapEx to be in the range of $175 million to $200 million.

Our CapEx is driven in part by the investment we are making to enhance our network and deliver competitive broadband services.

It is driven by investment we are making in software tools that improve our ability to manage our network and support our sales and customer service processes.

It is also driven by the strategic initiatives that Dave has highlighted, particularly hosted and managed services expansion, including approximately $30 million for expansion of our co-location facilities, broadband stimulus funding of approximately $20 million of our own funds in 2011, and IPTV expansion approximately $15 million.

So to summarize, we feel confident about our prospects for future growth and look forward to reporting further progress as we move through the year.

Thank you for your interest and now, I will turn the call back to Jane McCahon.

Thanks, Bill.

Christine, we're ready for Q & A.

Thank you.

We will now be conducting a question and answer session.(Operator Instructions)Our first question is from Ric Prentiss with Raymond James.

Please proceed with your question.

Thanks, good morning.

Good morning, Ric.

A couple questions on the wireless side first.

On the smartphone pricing, you mentioned you have several under $200 now with more declines coming throughout '11.

Can you give us a thought about what we're looking at as we get into the later part of '11 and '12 and what those cost curves might be and what kind of usage you're seeing on these phones?

Ric, this is Alan Ferber.

What we anticipate later on this year is the continued introduction of high-end smartphones but also the real growth in low-end smartphones as well.

How that relative mix is going to shake out, I think it's a little too early to really tell right now.

In terms of usage, our Android usage is around 600 to 700 meg, which is relative to everybody else, about the same.

Okay, and then on the CapEx and LTE side, a couple questions there.

First, I think I heard you guys say data roaming for GSM.

Can you update us as far as how much GSM you have in the network and what would be required there?

And the other question is on LTE prep -- you mentioned infrastructure prep.

What all do you have to do?

Is that backhaul?

Is that putting in more equipment at the cell sites?

What is LTE prep?

Yes.

So on the GSM roaming, Ric, we entered into an agreement with a major carrier during 2010 for a buildout of a GSM roaming network and to provide GSM roaming services, principally in the northeast.

A fairly modest amount of revenue at this point, but the network is built-out and it is providing GSM services today.

We'll certainly look at that as a potential opportunity to do more of that in 2011.

LTE?

Yes, on the LTE prep -- we've been in technical trials for some period of time and we can get back to you with more specifics if you'd like.

But, let's just say that our engineering team has done a really great job of making sure that we've looked at all components of what it would take for us to move to LTE.

The trials look to be almost complete and quite successful and we're now in the process of making decisions about vendors and time frames.

But we can circle back with the specifics if you want to know more.

Okay, and then LightSquared was in Barcelona, mentioned they've got some carriers signed on for their wholesale network LTE.

Any thoughts about having a network-provided solution versus using a wholesale solution, both in and out of market maybe?

Well, Ric, this is Ken.

I think we'll look at all options in terms of cost quality as well as implication on handset availability.

But there's a lot of different factors when we get down to that last one.

Particularly frequency, I guess, right?

Yes.

Thanks, Ken.

Our next question comes from Phil Cusik with JPMorgan.

Please proceed with your question.

Hi guys, it's Phil Cusick, thanks for taking the call.

Let's go to the wireless business first.

I want to make sure I understand, because what I heard is we talked about the trajectory in the business was, 4Q traffic was slower than expected until you really ramped up the handset promotion process.

And it seemed like a lot of uncertainty in terms of how you feel about gross adds going forward and sort of a wait-and-see attitude.

I want to see, first if I got that feeling right.

Yes, I would say that that's pretty right.

We felt that the Q4 holiday promotion we had an opportunity to strengthen and we did.

As you know, this is an intensely competitive environment out there.

Everybody is competing for this very small shrinking pool of new customers.

So it's our expectation that we have the right plans in place for 2011 to continue to build our subscriber base, but it's a competitive market.

So we're really putting our best foot forward as it relates to making sure that we're communicating quality of network, that we've got the right line up of devices, the right price plans and all of the benefits of the Belief Project so we feel confident about those being our ways to compete and differentiate.

So as I think about the last seven or eight weeks of the first quarter, do you feel like you're getting better traction on a natural pricing basis than you did in the pre-promotion times in the fourth quarter?

This is Alan.

I think the environment is still very competitive.

I think, January started out across the industry with a bit of a holiday lull.

It certainly picked up a little bit since then, but I think our outlook is just as Mary just mentioned.

We're very confident in what is building across our high quality network, really nice device line-up, competitive plans, and the overall benefits of the Belief Project.

Okay, and so as I think about your top line, your guidance for top line growth this year, I really should be focused on revenue per user, going through and upgrading your existing base, and bringing those guys up to smartphones rather than really growing the subscriber base.

Does that make sense?

Yes, I would say directionally and primarily that's right.

I think we actually expect to grow the sub base to some modest degree but certainly are looking for ARPU expansion as well.

And directionally, we're going to -- we expect -- anticipate seeing a lift in ARPU as more customers migrate to these Belief Plans and we bring on more new customers on to those plans.

Okay, and then just following up there.

I apologize if you said this, but there was some confusion last quarter.

We asked about upgrades and we didn't have the data then.

Can you tell us how many, or what percent of your subscriber base got a new handset in the fourth quarter?

It's about low teens, Phil.

Low teens and what was that say a year ago, any idea?

Not much different.

Oh, really, okay.

Thanks guys.

Our next question comes from Simon Flannery with Morgan Stanley.

Please proceed with your question.

Thanks a lot.

Good morning.

I think maybe Ken, you mentioned earlier in the comments around looking at evaluating simplifying corporate structure and in particular, the discount of the TDS.S shares.

You've obviously had a buyback program for some time now.

Can you just elaborate a little bit more on the options and the time frame for that?

Thank you.

Hi, Simon.

Thanks for the question.

So we have our security, our primary growth security, the security that we use for acquisitions, for comp plans and everything else is trading at a 15% discount to the other stock, notwithstanding the fact that it's got exactly the same economics and principally the same other rights.

And so it's a real challenge for us from a kind of a planning standpoint and the capital structure standpoint to see that discount.

So we, over the last two and a half years, have bought in first we went through two $250 million stock repurchase plans.

We're into our third one and that, while it's a nice discount for us to capture when we do our repurchase, it only exacerbates the problems that it keeps taking more of what I would call a less liquid stock out of the market.

So I don't have a solution to that today.

It's one that we are spending a lot of time and energy with, quite frankly, talking to investors, as well as bankers and our own legal staff looking for options to try to solve that conundrum.

But we don't have a specific plan or a timeline to put in front of you right now.

Okay, and then in the past you've talked about the relative exchange ratio between USM and TDS as being sort of unattractive for a buy-in.

Is that still the case?

Well, as we've said in the past, with an acquisition security that carries a 15% now almost 18% discount, it's hard to even get to the exchange ratio when I'm starting with that discount, so I think the discount is the first challenge that we have to overcome.

Great.

Thank you.

Our next question comes from Robert Dezego with SunTrust Robinson Humphrey.

Please proceed with your question.

I just wanted to follow-up on the guidance question.

If you look at the range on EBITDA guidance, would you say that the high end of the EBITDA guidance assumes kind of a negative subscriber?

Is net adds going to be really the main driver of that and could you talk about in that range of EBITDA guidance where you think net adds might be for the year?

I know you don't guide to it but even just directionally a positive or a negative?

Well, Robert, if you think about the business and what Steven and Mary talked about, there are a lot of factors that go into considering what we think the year is going to look like.

And so those that are probably most volatile right now and most influential in those numbers are as much service pricing going forward as well as smartphone take rates and smartphone costs, probably more so than subscriber growth at the margin.

And that's in fact part of the reason why with respect to subscriber growth, a lot of uncertainty around that but on a net basis, we don't see it as a significant driver of results and that's why we haven't provided the guidance, so the upper end of the range isn't necessarily indicative of no subs.

It's the way that it works out that, in terms of the total picture, again depending on the assumption about how many months of revenue you're getting and then the cost of acquisition tends to be somewhat offsetting.

So, as Ken said, it's more -- that range is more a function of questions about service plan pricing and equipment costs than it is about subscriber growth or no growth.

Okay, that's fair.

And with the unlimited prepaid providers -- we've seen in the calls the last couple days here really moving very quickly and hard into the smartphone plan sales.

Are you seeing any impact in this quarter or last quarter and what are you expecting from the unlimited prepay guys coming in with some of these, what seems to be pretty -- move up into the smartphone market that you're both trying to attack at the same time?

And the follow-up with that, could you give us some details of the aggressive promotion that you put out there in the quarter last quarter and if that's still in play and if you got something you might bring back again?

Thank you.

Okay, so on the prepaid side we've certainly seen increased competition from the various players there.

I would say overall, not a big net shift either way in terms of the overall playing field and one of the things we're excited about is we're going to be launching our own modems and higher end smartphones on prepaid later this year and we think that gives us another weapon in our arsenal there.

In terms of promos last year, it was really an eight-day sale that we did around the holidays where we offered all of our Android phones for free.

And Robert, to take the last part of your question, as we think about promotions going forward, it's going to continue to be something that we balance, the need to be competitive and the cost of those promotions.

So we don't have a promotion like that planned right now.

Other competitors have done promotions like that recently and we're just going to continue to strike that right balance for our business.

Okay, great.

Thanks.

Best of luck.

(Operator Instructions)

Our next question comes from Kevin Roe with Roe Equity Research.

Please proceed with your question.

Thank you, good morning.

Some smartphone follow-up questions.

First, what's the ARPU uplift from smartphones that you're seeing presently?

And on the cost side, you've been very clear, as have been your peers, about increased subsidies for smartphones, but what's the magnitude of upward pressure on CPGA that you expect in 2011 from those rising smartphone subsidies?

And, the last smartphone question, do you have an expectation or a goal for smartphone penetration at year-end?

So on the ARPU side, our smartphone customers have ARPUs in the high 70s, so it's much higher than our overall average ARPU.

Certainly subsidies are a bit of a moving target in the sense that both the cost of those devices and the retail pricing of those devices are both moving.

And then on the overall projection for our smartphones, in the fourth quarter we sold about 40%.

That's about the same level in January and February.

We expect that to be about that level, maybe a little bit higher as the rest of this year moves on.

Okay, and I think this is for Ken.

Is there a material divergence in the key operating metrics of your various wireless regions and would you entertain rationalizing the wireless footprint through divestments or acquisitions?

I think that we've always talked about having a portfolio of markets with the older markets more penetrated, the younger ones then the challenges, building the penetration and the ensuing profitability.

We're constantly looking at our portfolio and in the past have done deals at various times to strengthen the Company whether those be acquiring properties like we did in Kansas and Nebraska or whether it be trading them like we did in South Texas and Florida years ago.

Great.

Thanks, Ken.

Our next question is a follow-up question from Ric Prentiss with Raymond James.

Please proceed with your question.

Thanks.

I wanted to circle back on a couple things if I could.

In Barcelona last week, Alcatel Lucent introduced a product called Light Radio which they frame as a very revolutionary device that will shrink base stations.

Have you guys looked at that product at all?

Is it something that looks like it's coming in the short-term or how would that affect your thoughts about rolling out networks?

Yes, we saw that at Barcelona too.

It's a really great development.

It's amazing progress in the infrastructure world.

So yes, we've seen it.

I'm not going to get specific about what our plans are going forward.

But as you can imagine, as we're also looking at the speed of the industry move into LTE, we're going to put ourselves in a position to take advantage of as much innovation as we can.

Okay, and then on -- kind of the guidance question, when you came back to service pricing and smartphone costs and take rates.

It seems to us that really, the competition is more focused around subsidies, device availability, as opposed to the rate plans.

In fact most carriers are suggesting rates have been going up, ARPU has been going up.

So how much -- are you expecting some change in the service pricing plan environment or should we think it still is mostly handset oriented maybe, the competition?

It seems to me that every day is a new day in this industry, right?

So, while I think part of that's true, we just saw today an announcement by a competitor on a very aggressive rate plan move that may be temporary, may not.

So I think we're going to look at it and continue to keep our eye on a balance of both.

Okay, but has it been mostly -- as you went through the holiday period so far up until the recent one -- has it been mostly handset side?

Yes, I would say that's absolutely true and I think that's attractive to customers.

It's a very rich subsidy and I think people understand that.

So that seems to be the trend although, like I said, service plans, pricing plans continues to be a competitive part of the landscape as well.

Final question is more philosophical.

As you look at the landscape here competitive and as you look at the changing dynamics of data tsunami and smartphone tsunamis that we've seen quoted out there, how do you think about margins on the wireless side?

Where can they go?

Is this 20% of the guidance range?

Is that where you're at, the Belief Project?

Can it move it up into the mid 20%s?

I'm just trying to think, where can margins head philosophically as you look at this industry and the changing dynamics?

Well, I think philosophically and maybe more than philosophically, what we're really focused on is driving our longer term returns, return on capital above our cost of capital.

We've got to improve our margins in order to be able to do that.

I think you're getting a sense from our guidance of what we think is achievable this year.

Over time, we expect that we'll see sub growth and ARPU growth and improvements in churn that are going to grow top line and we're looking at every aspect of cost in the business to drive efficiency, so we think expansion is possible.

Not really in a position to say how much or how fast at this point.

Okay, thanks.

There are no further questions in the queue at this time.

I would now like to turn the floor back over to management for closing comments.

I'd like to thank everybody for their interest this morning and we'll talk to you after Q1.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.