美國無線通訊 (USM) 2011 Q4 法說會逐字稿

Greetings, and welcome to the TDS and US Cellular fourth quarter 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, Ms.

Jane McCahon, Vice President, Corporate Relations for TDS.

Thank you, Mrs.

McCahon, you may begin.

Thank you, Louis.

Good morning, everyone, and thank you for joining us.

I want to make sure you are all aware of the quarterly conference call presentation we have prepared to accompany our comments this morning, which you can find on the Investor Relations pages of the TDS and US Cellular websites.

With me today, and offering prepared comments from TDS, Kenneth Meyers, Executive Vice President and CFO.

From US Cellular, Mary Dillon, President and Chief Executive Officer; and Steve Campbell, Executive Vice President and CFO.

From TDS Telecom, David Wittwer, President and CEO; and Vicki Villacrez, Vice President of Finance and CFO.

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

Please see those websites for slides referred to on this call, including 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 releases, and the more extended versions that will be included in our SEC filings.

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

Both companies plan to file their SEC Form 10-K later this afternoon.

In the next couple of weeks, we will be attending two conferences, Morgan Stanley on February 28 in San Francisco, and Raymond James March 7 in Orlando.

We will also be hosting analyst visits during CTIA in New Orleans on May 9.

If you like to meet us in any of these events, let we know and we'll try to accommodate you if at all possible.

And keep in mind that we have an open door policy, so if you're ever in the Chicago area and would like to meet with members of Management from TDS Corporate, US Cellular, or TDS Telecom, the Investor Relations team will try to accommodate you, calendars permitting.

With that, turn the call over to Ken Meyers.

Thank you, Jane.

Good morning.

TDS ended 2011 in a strong position, with revenues up 4%, operating income up 22%, and net income, available common, up 38%.

We ended the year with a strong balance sheet, ample credit line, and for the most part, no unfunded pension liabilities.

As you know, we termed out most of our debt during the year, pushing it out to 49 years.

All of this gives us significant financial flexibility, as we continue to position our Company's for future growth.

In 2011, TDS incurred a federal net operating tax loss, attributable to the 100% bonus depreciation rules that were in effect.

That resulted in current savings of cash taxes.

The related future federal tax liabilities are accrued as a component of net deferred income tax liabilities on the balance sheet.

TDS expects federal income tax payments to substantially increase, to remain at higher levels for several years, as the amount of the TDS federal tax depreciation deduction substantially decreases, as a result of us having taken the accelerated depreciation in previous years.

This expectation assumes that federal bonus depreciation provisions are not enacted in future periods.

Also, in the fourth quarter, there were some unusual expenses and tax items, that I will comment on, related to the share consolidation project.

We had $7.2 million in expense that was not tax deductible for tax purposes.

There was a $6 million adjustment to correct deferred tax balances, related to tax basis in some of the US Cellular partnerships.

We completed the share consolidation in January.

As part of the consolidation, we issued approximately 4.9 million additional shares to our shareholders.

Even though completed in January, the accounting rules require us to retroactively adjust shares outstanding.

Therefore, EPS, as of December 31, for the incremental 4.9 million shares issued in the classification.

Similarly, we've had to adjust excess -- capital in excess of par, as well as retained earnings.

On behalf of Management and the Board, we thank you for your support on this initiative.

And we look forward to capitalizing on an additional opportunities, both operationally and strategically to strengthen the Company, and create shareholder value in the process.

We are evaluating what those options may be, and are listening to our shareholders on various ideas they may have, much as we did with the share consolidation project.

Some of the ideas we have heard so far involve changes to our dividend, and share buyback policies, as well as more radical changes to our M&A activity, as well as structure.

Of course, the devil is in the detail, as we evaluate each scenario along with the legal complexities, and a long-term impact on the Company and all of its constituencies.

We have not been in the market repurchasing shares under current authorization, due to the blackout around the share consolidation project, as well as earnings.

We have about $157 million remaining on that authorization that runs through November of this year.

It is our intent to complete the program, conditions permitted.

One of the benefits of the share consolidation project is, with us now only purchasing common shares and the greater liquidity that those shares have, there is a high likelihood we could complete that in normal market conditions.

The regulatory environment remains critical to our businesses.

Since our last call, stakeholders of all sorts have been reacting to the SEC's USF and ICC order by filing comments, petitions, and appeals.

Our teams, working with industry association, are participating in the process.

In the meantime, the SEC is moving forward with plans for a reverse auction to award of Mobility Fund Phase 1supports.

US Cellular is reviewing the proposed rules and considering participation.

Last Friday, the Congress passed a long-awaited spectrum legislation, in conjunction with the payroll tax production extension.

We expect the FCC will now initiate an extended rule-making process, to set the stage for future auctions made possible by the legislation.

We are also encouraged by the action of the SEC on device interoperability.

In adopting this order on the AT&T Qualcomm spectrum deal, the FCC adopted important interference protections, but it also promised to initiate rule-making on interoperability in the first quarter.

We look forward to that rule-making.

Now, let me turn the call over to Steve Campbell, with US Cellular.

Thank you, Ken, and good morning, everyone.

US Cellular's results reflect the continuing challenges of an extremely competitive market and a sluggish economy in which, all carriers continue to fight for a dwindling pool of new subscribers, and the cost of acquiring switchers are significant.

On a positive note, as shown on slide 8, fourth quarter retail gross additions for 298,000, up from 292,000 in the prior year quarter, and up from 284,000 in the third quarter.

These results are evidence of our progress in increasing awareness with consumers and improving our sales execution.

With respect to net additions, and the postpaid segment, there was a net loss of 20,000 customers, as the increase in gross additions was offset by an increase in churn.

However, as Mary Dillon will discuss in her comments, we did have positive postpaid net additions in December, the most competitive selling season of the year.

In the prepaid segment, we had increase of 7,000 customers.

So, in total, we lost 13,000 retail customers in the fourth quarter of this year, compared to net loss of 21,000 last year.

Our churn results are shown on slide 9.

Postpaid churn increased to 1.63% from 1.52% last year, which we attribute primarily to the launch of the new iPhone, the first new version introduced in the fourth quarter, and across three national carriers spanning a broader portion of our footprint.

We continue to add customers to our Belief Plans, in fact 354,000 more during the fourth quarter as they recognized the value and exceptional service that we provide.

We currently have 3.1 million customers on our Belief Plans, which is critical to controlling and reducing churn as customers on our Belief Plans who are out of contract have significantly lower churn rates than legacy customers who are out of contract.

Slide 10 reflects our smartphone sales, penetration growth, and postpaid ARPU.

During the fourth quarter, we sold 505,000 smartphones which represented over 52% of total devices sold.

This compares to the fourth quarter of 2010 when we sold 395,000 smartphones, or about 40% of the total units sold.

Smartphones now represent over 30% of our postpaid subscriber base, compared to about 17% at the end of 2010.

Although the overall cost to subsidize these devices is greater, the average revenue per customer also is higher, and we expect that will continue to benefit our results over time.

In fact, as you can see in the graph at the far right, postpaid ARPU has steadily increased over the past several quarters, driven by strong smartphone sales beginning late in the fourth quarter of last year, as well as by the continued migration of customers to the higher ARPU Belief Plans.

This trend has more than offset the effects of the overall competitive environment, and the significant downward pressure on voice pricing over the past several quarters.

Postpaid ARPU was up 5% year-over-year to $53.35, up from $50.99 a year ago.

Also, remember, that as part of the required accounting for the Belief Plans, US Cellular defers a portion of its revenues to properly account for the loyalty reward program.

In the fourth quarter, the Company deferred $11.7 million in net service revenue which had it been recognized as service revenue during the quarter, would have added another $0.73 to postpaid ARPU.

That deferred revenue will be recognized in the future, either as service or equipment revenues as the loyalty points are redeemed or used.

So, turning now to our financial performance which is shown on slide 11.

Service revenues for the quarter were $1.030 billion, which is an overall increase of $38 million or 4% from last year.

Breaking that down a bit further, retail service revenues were $882 million, an increase of $17 million or 2%.

Inbound roaming revenues increased once again, growing $26 million or 38% year-over-year to $93 million, primarily as a result of increased data roaming traffic.

We expect to see continued, but more modest growth in this very high-margin revenue stream.

System operations expenses of $242 million were up $26 million, or 12% year over year.

This was due primarily to higher usage and roaming expenses, as our customers used more data services both and on and off our networks.

Through December of this year, total data network usage increased almost 3.5 times over the same period last year.

Net loss on equipment for the quarter was $156 million, down $3 million from last year, primarily as a result of fewer total equipment transactions.

The average loss per device sold was flat year-over-year, despite the shift in mix to smartphones.

In fact, given the 28% increase in smartphones sold, and their greater share of the overall mix, we believe that we have done a very good job of controlling our equipment costs.

By better balancing the types of devices offered and our promotions on them, and introducing lower-cost entry-level smartphones to broaden our line up.

SG&A expenses of $470 million were down slightly year-over-year.

Reductions in advertising and improvements in bad debt expense were offset by increases in other selling G&A expenses, due primarily to higher spending for phone exchange and loaner programs.

Operating cash flow for the quarter of $162 million was up 15%, compared to last year's $141 million, and operating cash flow margin was 15.7% in the quarter, compared to 14.3% last year.

Moving on to slide 12.

Below the operating income line, total investment and other income net for the quarter totaled $2.9 million, including earnings of approximately $12 million related to our interest in the Los Angeles partnership.

Net income attributable to US Cellular shareholders totaled $2.8 million or $0.03 per diluted share, versus $7.8 million or $0.09 per share in 2010.

The tax rate for the fourth quarter this year was 58.9%, compared to a tax benefit of 91.6% last year.

As Ken already mentioned, the Company recorded an adjustment in the fourth quarter to correct it's deferred tax balances related to partnership investments that increased income tax expense by $6.1 million in the quarter.

Last year, income tax expense was reduced by favorable settlements of certain state income tax audits.

For the full year 2011, free cash flow was $216 million, net of cash used for additions to property, plant and equipment of $772 million, which increased $199 million or 34% over 2010.

That higher spending reflects significant investments to deploy 4G LTE, and for major initiatives such as our new billing and operational support system.

US Cellular's balance sheet remains sound, and we have significant liquidity and financial flexibility, together with the 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 $551 million, and we have about $300 million of unused borrowing capacity under our revolving credit agreement.

So, now let me turn the call over to Mary Dillon.

Mary?

Thank you, Steve.

Today I am going focus mainly on our strategic priorities for 2012, and then will finish with our financial expectations for the year.

First, however, let's take a moment to look at slide 13, and what we accomplished in 2011.

I am very proud to lead US Cellular and our talented associates, and they are dedicated to keeping us competitive, by making sure we give every customer an outstanding wireless experience.

It's important to note, that we have been able to provide award-winning customer experiences, while also improving our efficiency, and paying close attention to the bottom line.

In 2011, we increased total revenue per customer by 6%.

We achieved this by increasing smartphone penetration, and migrating more customers to higher ARPU Belief Plans, and through higher inbound roaming driven by increased data user.

We have also built a competitive line up of devices that appeal to a wider variety of customers.

We want our customers to have the right device, not necessarily the most expensive device, and we encourage our associates to really take the time to understand each customer's unique needs.

Having a wide variety -- a wider variety of device cost points also helps us to better manage loss in equipment.

So that, as Steve said, we are able to keep our average subsidy per device constant, even as we sold 28% more smartphones in the fourth quarter.

This is just one other ways in which we are controlling or reducing expenses, and these efforts have helped to improve our bottom line.

Now, that said, our biggest challenge in 2011 was difficulty in growing our subscriber base, however, we are making progress.

Our postpaid gross adds in the fourth quarter were better, both year-over-year and sequentially, though the iPhone launch and aggressive competitive promotions drove churn up for net loss of postpaid customers in the quarter.

In December, which is most intensely competitive month of the year, we added postpaid customers.

Our success here, was a result of our continued improvement in marketing and in-store execution.

Finally, but importantly, we also prepared for the launch of our first LTE markets and devices.

This will further enhance our customer's data experiences, and our competitive position.

Now let's turn to slide 14, and take a look at the economic and competitive outlook, which is an important backdrop to our expectations for 2012.

From our perspective, business conditions continue to be very challenging.

Though the job's picture improves to be modestly, we believe high unemployment will cost consumers to continue to be cautious with their spending, and to seek the greatest value for their money.

Therefore, we haven't incorporated any significant economic improvements into our projections.

The wireless industry is more competitive than ever.

Industry growth rates have been in decline since 2007, and penetration is likely crossed 100%.

If penetration increases, and churn stays relatively low, the pool of available switchers is getting smaller.

Of course, we now have three competitors offering the iPhone in more markets.

There's no doubt we feel the impact, but we believe we made the right decision, not to carry iPhone under the terms and conditions offered to us at the time.

On the pricing front, most customers have introduced tier pricing for data, which is very sound and necessary given the explosive growth in data use.

We plan to do so later in the first half, as part of an overall pricing refresh.

Now, let's turn to slide 15.

We're intensely focused on growing our subscriber base, in spite of the economy and the competitive landscape.

We're continuing to differentiate US Cellular in the marketplace through our demonstrated focus on customer satisfaction.

The fact that US Cellular is ranked first in overall satisfaction among all postpaid wireless carriers in the US, shows that our approach really resonates with customers.

We need to build on that, and do so cost effectively.

We are making good progress in improving the effectiveness and efficiency of our marketing tools, to drive greater awareness, consideration, and conversion to US Cellular.

Our gross add results and our analytic tools indicate that we are gaining traction, and improving the effectiveness of our traditional advertising, as well as benefiting from the use of more robust digital and social media activity.

To assist us in advancing our awareness further and faster, we hired a new ad agency this month.

Additionally, the impact of our promotional activity continues to improve, with more precise pricing across the full range of devices, and more compelling integration of our industry-leading rewards program, to drive both switching and advocacy.

In fact, in December, we saw a sharp increase in our rewards program engagement, which is a clear indication that consumers see real value in this differentiated service.

The foundation of the Belief project, rewarding customers for the loyalty with relevant and meaningful benefits like early phone upgrades, overage protection, et cetera, continues to differentiate us in the market place, and will continue to be core towards our strategy.

The Belief project is not only a differentiator.

It has helped to increase ARPU, and maintain our already low churn for the 3.1 million customers on Belief Plans, which is 55% of our retail customers.

These loyal customers are an important part of our strategy to attract new customers, using the power of word-of-mouth recommendations and social networks.

We will focus on continued improvement, and we have to address the recent uptick in churn, but I'm confident we are headed in the right duration.

Now in addition to continued focus on our offerings and communications with our key customer segments, we are also continuing to strengthen the execution in our Company-owned stores and agent stores, through new training and tools.

We are increasing our focus on small to medium business customers, and we're looking to expand our points of distribution.

As I will speak about in a moment, our ability to offer 4G LTE devices and services to over half of our customers by the end of the year, will significantly enhance our competitive position.

Now turning to slide 16.

You will see that we plan to continue to drive ARPU growth, by increasing smartphone and date use.

We have exciting devices planned throughout the year, to maintain a competitive device line up.

We plan to introduce approximately 20 new devices in 2012, and more than half of them will be smartphones.

We will continue to carry the top Android, Windows 7, and Blackberry devices.

As I mentioned earlier, I am proud that we have achieved a healthier balance between our high-end smartphone sales goals and the steep cost of subsidization.

We have successfully introduced a number of lower-priced smartphones We are selling a number of smartphones with the sub $200 cost, and we see opportunities to further reduce costs in the year.

This will help us offset the higher cost of our 4G devices, and we will continue to manage this balance closely.

Moving to slide 17.

Let's take a look at our technology path, and how we see it evolving to support our smartphone strategy and ARPU goals.

Now given the extraordinary increase in data use and penetration, and it's importance to our overall success, we plan to roll out 4G as quickly and as efficiently as possible.

As we announced earlier this month, we will launch our Wave 1 markets over the next few weeks, along with our first devices, a tablet in March, and our first 4G smartphones in April.

Last week, we announced our Wave 2 markets, which will reach across much of our footprint, so that by the end of year we expect to be offering 4G devices and service to over 54% of our subscribers.

We plan to offer 6 to 8 4G devices this year, and we will also continue to invest in 3G data capacity to support data use and high-quality experiences on our EVDO network.

Now, before I turn it back to Steve, I would like to outline our plans to improve profitability, as summarized on slide 18.

We expect to grow the top line in 2012, through increases in ARPU and roaming revenues, as data traffic continues to go.

While we are focused on growing our subscriber base, we are also realistic, in terms of how quickly we will able to do so, given the intense level of competition we face.

We also plan to launch tier data pricing, during the first half of the year.

We know that we have to tightly manage costs, to translate our expected revenue increases into improved margins.

We will also continue to fund the operational initiatives that are critical to our long-term success.

We have made good progress in many of these programs including our web initiatives, which enable more customer transactions, and the implementation of our Enterprise Data Warehouse/ Customer Relationship Management System.

The largest of these projects, the implementation of a new billing platform is moving forward, and we expect to begin converting customers early next year.

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

So, our guidance for the full year 2012 is contained in today's press release, and it is also shown on slide 19 of our presentation.

As you can see, we're projecting service revenues up $4.05 billion to $4.15 billion, reflecting continued improvement in ARPU and roaming as Mary just said.

Although the roaming is not expected to grow at the same rate as it did last year.

Offsetting that growth will be the impact of subscriber losses in 2011 flowing through the 2012 results, anticipating the impact of the launch of a new version of the iPhone, and the expected loss of $16 million of ETC revenues beginning in July.

Operating cash flow is expected be in the range of $800 million to $900 million, depreciation and amortization and accretion of approximately $600 million, which then leads to operating income of between $200 million to $300 million.

Finally, capital expenditures are expected to be approximately $850 million.

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

New developments or changing conditions, such as the rate of growth in data usage, or the rate of deployment of 4G could affect our plans, and therefore our capital expenditures and operating expenses.

Other factors influencing our current thinking about 2012 results, included significant risks related to service plan pricing and equipment subsidies.

While we are intensely focused on growing our subscriber base in 2012, we just don't have the visibility to predict the degree to which we will be successful in that regard.

Mary?

Thank you, Steve.

To summarize our plans for the year.

Our highest priority is to drive subscriber growth by increasing net postpaid additions, through the combination of relevant devices, price plans, advertising and promotion, along with our great customer experience.

We plan to drive ARPU growth through continued smartphone penetration.

We will also strengthen our business through expanded points of distribution.

We will continue to invest in operational initiatives that will enable us to improve efficiency, and ultimately reduce operational costs, all toward our goal of continuing to improve profitability.

Importantly, we will bring 4G network speeds and devices to over half our market, to support our ARPU goals.

Now I like to turn the call over to Vicki Villacrez and Dave Wittwer, for a discussion TDS Telecom.

Vicki?

Thank you, Mary.

Good morning, everyone.

As shown on slide 22, TDS Telecom's fourth quarter performance was highlighted by, one, the continued growth in ILEC data revenues, including the effects of hosted and managed service acquisitions.

Two, ongoing initiatives to stabilize traditional wireline revenue and line losses, and, three, our continued cost control efforts.

Turning to slide 23, revenues for Telecom's combined operations, including hosted and managed services were up 4% from last year.

ILEC revenue grew 6% with HMS acquisitions, and our growth in high-speed data, more than offset any declines in traditional voice and network access revenues.

CLEC Revenues were down 3%, as the decrease caused by the declining number of CLEC residential customers, exceeded the increase in commercial revenues for the quarter of 1.1%.

Turning to slide 24, ILEC data revenues increase 45% in the fourth quarter, driven by acquisitions and growth in hosted and managed services.

The growth in high-speed data subscriber additions earlier in the year also contributed to data revenues, with subscribers growing 5% year-on-year.

We continue to attract new customers, and they are taking higher speeds.

The number of data subscribers taking speeds of 5-megabits or greater is now 57%, and 17% are taking speeds greater than 10-megabits.

Our residential DSL penetration was 62% of primary residential lines, and residential DSL ARPU remained stable at $37.00, as migration to higher speed service offsets competitive pricing pressures.

The decline in ILEC revenues was driven by the continued trends in physical access line loss, as you can see on slide 25.

Line losses slowed to 5%, as our Star Voice Packages continue to help us mitigate line loss.

At year-end, we had at 198,000 customers on these plans, which are 56% of our residential customer base, up from 46% from this time last year.

As the result of our success with selling voice packages, we've seen an improvement in residential voice ARPU.

Turning to slide 26, we continue to emphasize our triple play bundles, voice, data and video, with video offered primarily through our partner, DISH Network.

We added 1,000 net triple play subscribers in the quarter, bringing our penetration of customers to 29%.

We know the importance of bundling in reducing churn.

Churn on our triple play customers is very low, at roughly 0.5% per month.

We have had measurable success with our bundled offerings, with 67% of our residential customers on double or triple play bundles, up from 62% last year.

Turning to the commercial segment on slide 27, we continue to lead with our hosted IP service we called managedIP.

For Telecom's combined operations, we now have 43,000 stations installed, an increase of 57% over last year.

Turning to the P&L on slide 28, consolidated cash expenses were up 11% for the period.

ILEC cash expenses increased 16%, with HMS acquisitions.

A 1% decrease in CLEC expenses is in line with fewer residential customers.

We have maintained our focus on cost control, and we'll continue to seek greater efficiencies throughout our organization.

All-in operating cash flow for the quarter was $62 million, a decrease from $69.1 million achieved in 2010, as high margin legacy voice and access revenues declined 4.2%, which was not offset by the growth in HMS in data revenue.

Our CapEx spending in 2011 was $191 million.

We did not spend as much as we expected on the broadband stimulus projects, primarily due to administrative delays.

So, the majority of our portion of spending on this projects have been moved to 2012.

Now I will turn this call over to Dave Wittwer.

Thanks, Vicki, and good morning, everyone.

I'll discuss our accomplishments in 2011, and most importantly, what we have planned and are already working on in 2012.

First, I will recap our accomplishments for the year, as outlined on slide 29.

We made important progress on our residential and commercial business strategy.

TDS Telecom has made the transition to a broadband company, with 94% of our access lines having data access.

In 2011, we focused most of our network investment on increasing broadband speeds to remain competitive.

A key part of our residential strategy is bundling.

We ended the year with two-thirds of our ILEC residential customers on double or triple play bundles, which have very low rates of churn.

Another way we are retaining residential customers and increasing revenues is through our proprietary IPTV service, TDS TV We are launching TDS TV in two markets to fine-tune the service, and have prepared our network for further expansion.

This video service, along with our DISH Network offering, will be a strong component of our bundling strategy going forward.

In our commercial business, we continued to grow the number of stations of our managedIP, voice, and data communication product, and we added important features and expanded the product portfolio, in response to customer needs.

We also continued to build our hosted and managed services business with the acquisition of OneNeck IT Services.

An IT outsourcing and managed services provider with a global client list.

We expanded two of our data center facilities, due to increased customer demand for capacity.

We are building our business for the long-term, and that means investing in our infrastructure.

We improved several key operational systems in 2011, to make our ordering, inventory, and provisioning processes more efficient, and will continue that work in 2012.

Moving to slide 30, I will go over what we expect from the economic, competitive and regulatory perspectives in 2012.

As Mary said, though, there has been very modest job growth, and we don't expect to see any meaningful economic improvement in the year.

And that will continue to keep both our residential and commercial customers focused on their spending.

From a competitive standpoint, we face cable competitors in at least two-thirds of our markets.

We believe we can continue to gain market share in these and other markets, by continuing to increase broadband speeds, competitively priced bundles, and superior customer service.

Wireless substitution also remains a competitive threat, but once we continue to -- but one we continue to battle with attractive product bundles that help reduce that churn.

On the regulatory front, we believe that the FCC's recent order to establish a support mechanism called the Connect America Fund, and to reform the rules for intercarrier compensation will provide greater predictability in the for our wireline operations, and support further broadband expansion and development.

However, due to the follow-up proposals that the Commission deferred to a later date, the number of petitions for reconsideration, and the petitions for judicial appeal, it's difficult for us to say with any certainty, what level of support we might receive under this new arrangement over the long-term.

Now, I will discuss our residential and commercial strategies for 2012, beginning with slide 31.

As I mentioned on the last slide, we planned to gain residential market share through our broadband and IPTV offerings, service bundles, and customer service experience.

We are building a super high-speed data platform, that will help us continue to deliver higher data speeds, and also support our planned rollout of TDS TV to 19 markets in 2012.

Both TDS TV and our existing DISH Network offering are important components of our service bundles.

Bundling video with our broadband voice services, helps us churn low and drive penetration.

And we believe that our proprietary video service will help to increase revenues as well.

We also expect to make significant progress on our 44 stimulus-funded projects, to bring broadband access to remote communities across the US.

Our goal is to make substantial progress towards completion of the majority of those projects in 2012.

When completed, approximately 97% of our access lines will have data access.

Moving to our commercial strategy on page -- on slide 32, we're continuing to evolve the features and capabilities of our flagship managedIP voice and data communication platform.

Our goal is to achieve aggressive growth in this area on par with last year.

As businesses remain cautious about expending, we believe the fact that managedIP requires no capital investment, will continue to be very compelling to prospective customers.

Our commercial customers themselves, compete for customers in a struggling economy, managedIP's productivity benefits enable businesses to spend more time focusing on their customers.

Our hosted and managed services business is still very much in the growth phase.

We plan to add to the portfolio in 2012 to build a diversified business product portfolio, with wide range of offerings including [managed] services, hosted services, cloud services and IT services, and other business solutions.

We are also expanding our existing HMS capacity, as demand increases for secured data storage and reliable services.

Now, I will turn the call back over to Vicki to review our 2012 guidance.

Thank you, Dave.

In terms of our 2012 guidance, we expect revenue in the range of $810 million to $840 million, as data growth from our broadband offerings and HMS business offset declines in network access and voice revenue.

We are forecasting operating cash flow to be in the range of $245 million to $275 million, which would be a decrease from 2011.

This is partly because we had several discrete gains during 2011 totaling $9.4 million, that will not be repeated this year.

The other factor to consider, is that we are expecting a continued decrease in network access revenues, including the initial impact of USF Reform, which will cut safety net support.

While we are not -- while we are offsetting those revenues with data revenues, we are not doing so at the same margin levels.

Depreciation, amortization, and accretion is expected be approximately $190 million, leading to operating income of $55 million to $85 million.

Lastly, we expect CapEx to be in the range of $150 million to $180 million.

Our CapEx is driven in part, by the investment we are making to enhance our network, deliver competitive broadband services, and improve our systems of support, sales and customer service processes.

Included is over $30 million of [success state spending], related for (technical difficulties) optimism we have over the ability to expand our IPTV offering, and our continued success with the managedIP and high-speed data.

CapEx will also be driven by the strategic initiatives that Dave had highlighted.

Particularly, one, the high-speed network deployment to support future data products and video capability, in the range of approximately $30 million; broadband stimulus funding, approximately $25 million of our own funds in 2012; and HMS, approximately $15 million.

So, to summarize, we feel confident about our prospects for future growth.

We 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 over to Jane.

Thanks, Vicky.

Louis will be ready to take questions.

Alan Ferber, who is our Executive Vice President, Chief Strategy and Brand Officer at US Cellular, will also join us for the Q&A period.

(Operator Instructions)

Our first question comes from the line of Ric Prentiss from Raymond James Financial.

Please proceed with your question.

Thanks, good morning, everyone.

A couple of questions.

I would like to start on the whole USF access item.

On the US Cellular side, think I heard you say, you expect $16 million in the ETC to effect in July.

Was that an annual number, or is that the half-year effect?

That is the half-year effect.

We, as we understand the order, we'd start to see a reduction of 20% per year, effective July 1.

So, roughly about 10% of our revenue for this year, which was in the range of about $160 million.

That is how we are forecasting the $16 million.

So, half-year effect.

And then, on the TDS side, you mentioned briefly the negative effect of the USF and access.

Can you quantify for us how much is in the ILEC and in the CLEC, as far as the impacts?

Sure.

As Dave said, it is difficult for us to say what level of support we might receive under this new arrangement, and what the impact of the order may have from a long-term perspective.

But based on what we know today, which is not a complete picture, as you know, there's a number of issues related to the rate of return carriers that impact us, that have not yet been resolved.

So, having said that, we do expect to lose about $3 million of USF support, that's primarily related to the [flash] cut of our safety net funding.

And that is a year-over-year number.

Ric, it is Steve.

I want to add to my earlier response, too, because something Vicki said triggered an idea with me, which is -- the reduction that we are projecting for ETC, of course, doesn't assume at this point any receipt of funds under the new Mobility funds that have been created.

That would still be somewhat uncertain, as to what we would get under those funds, if anything.

So, we haven't built that into our forecast at this point.

So, that was the -- on the TDS side, the $3 million USF, there is further cuts on the access side, too.

Right?

Yes.

There will be further cuts on the access side.

Right now, as we look at the access revenue and the wholesale revenue as it declined this year, we are expecting some further cuts next year, as well as a number of companies that won't qualify for the high-cost loop support.

So, overall, it could be in the tune of up to about $15 million.

Again, our strategy is around the IPTV and super high-speed data growth, as well as HMS to try to offset those revenue declines.

Right.

But that $[15] million is baked into your guidance?

Yes, it is.

Okay.

That helps a lot.

And then switching gears, going back to wireless, I think you mentioned that you expect a new iPhone launch, or a new iPhone launch is assumed in your guidance.

Is that a second half, fourth quarter --?

Just trying to gauge when we should expect, and obviously it is not from Apple, it's just your assumption, but just trying to gauge when you think that might affect you?

We don't have a specific timing assumption built in.

We are just presuming that at some time in 2012, there is likely to be another iPhone launch.

I'll drop out, and come back if there's time at the end.

Thanks.

Our next question comes from the line of Phil Cusick from JPMorgan.

Please proceed with your question.

Hi.

So, I guess start on ARPU.

First, can you talk about the loyalty points?

I think you said $0.23.

Is that sort of incremental drag versus the third quarter number, or is that the total drag that you are experiencing now?

And at what point do you expect that's more of a steady state run rate?

Phil, it is Steve.

So, the number that I quoted was actually $0.73.

I'm sorry if that didn't come through.

It's probably my handwriting, not you.

And that is actually the net drag on the third -- I'm sorry, the fourth quarter.

That is not a comparative number.

That's simply what the impact on the fourth quarter number would be.

As far as when we would get to a steady state, I mean, as we grow the base, as customers continue to reward points -- I think, first of all, we've had the plans in place about a year now.

So, we may be getting to the point where you could say, year-on-year, we'd be getting to steady state.

But, assuming that we continue to grow the base, which is our intention, we think there could actually be some increase in that number over time.

Okay.

And in terms of ARPU creation, I mean, given the acceleration on the fourth quarter, it seems like this ramp up could go through 2012?

Is that fair, or do you expect that you are going to get to a steady state on smartphones, and then sort of stall out?

No, I think it is fair to say that we believe we will have incremental or incremental growth in ARPU, as we go into and through 2012.

I think when you look at our smartphone penetration, where we are at today, at roughly 30% of our base, we feel like we've got quite a bit of headroom there, actually, when you compare that to what occurs in other carriers [have].

So, we think there's still ample room for growth in ARPU, as a result of smartphone penetration.

Great.

And then, if we can get into the margins a little bit, or I guess the costs.

Can you help us think about how you expect to see cost of service ramp through this year?

And between the LTE network build, and what sounds like a little bit of a ramp in your own roaming costs, how should we look for that to grow?

Well, again, I think it is somewhat implied by our guidance.

You see, certainly at the midpoint of the range, we've got about 1% overall growth in service revenues -- well, ARPU growth will drive some of that.

We expect continuing growth in roaming, as we said, although more modest than we saw in 2011.

But when you look at our guidance on operating cash flow at the midpoint to the high end, you see a number that is somewhat flat to some growth.

So, I think in terms of overall costs, you got some competing things there.

For one thing, there are added costs associated with the LTE deployment.

But, another factor is that this is a big year for us in terms of progress on our major enablement initiative.

So, there's going to be a significant increase in operating expenses associated with the development and testing and so forth on the billing system.

Also remember, that $16 million of ETC revenue is virtually 100% margin, and falls to the bottom line.

Yes.

So, I think we have some competing things going on there, in terms of margin contribution.

Right, and Steve, I was just going to add to build on that.

In addition, of course, we're focused very keenly on managing costs across -- of everything we do.

So, whether it is the continued focus on having smartphones at sub-$200 price points in the portfolio, data management, things within our network, WiFi offload, compression, we continue to look at the ability to be even more efficient and effective with our marketing spend.

So, while we, of course, have costs going up, we are also looking to manage costs -- continue to manage costs across the rest of the business as well.

Okay.

And just maybe one last one.

Given where we are, higher CapEx, lower margins in 2012, when do you think US Cellular can get back to a sort of cash-generating mode?

Is that possible in '13, or is that a little optimistic?

I'm going to step in on this one, Phil.

It is Ken.

2013 is definitely a possibility.

I think, where there are two huge unknowns at this point in time that cloud the picture.

One is going to be the continued evolution of the product set with more and more smartphones driving the handset cost, that drives the revenue, which is great, but it has the front-end cost, and that's going to affect margins this year.

And, quite frankly, the more it affects margins this year, the less next year.

To the extent it takes a little bit longer, it's going to flow into next year.

Right?

And following up on the sale of the smartphone, has been the explosive data growth that has a double effect on your network right now.

One effect is the Company is rapidly pushing out LTE now, and building that into the network.

It's got double operating costs because of they're doing that.

But we've got the double -- we have the double or the capital expense of putting that out there.

At the same time, we still have the bulk of our customers -- all of our customers today sitting there on EVDO, using the data products.

So you are investing, in effect, for two networks at the same time.

So, depending upon the pace of the first one, I think it is going to have a big impact on whether it is '13 or not.

Good.

Thanks, Ken.

Our next question comes from the line of Simon Flannery from Morgan Stanley.

Please proceed with your question.

Thanks a lot.

A couple questions for Mary.

Mary, you talked about December being a good month for you.

Perhaps you can just talk about what exactly was going on there?

Were you able to get the churn back down again, or was it an acceleration in gross adds.

And is this something you have seen extend in 2012?

And maybe you can also contrast the iPhone 4S launch with what had happened with iPhone 4, and what had happened when Verizon got the iPhone 4?

And then, on the LTE rollout, where are you in terms of data roaming, and the potential to get some roaming agreements to give people a larger footprint on the LTE devices?

Thanks.

Sure.

Thank you, Simon.

In December, we were really pleased to see the outcome of what I think was a culmination of continuing to sharpen how we create demand in the marketplace, and how we execute in our stores.

So, we saw improvement on our gross add performance sequentially, as well as year-over-year.

And we are comparing ourselves to last year -- a more expensive promotion where we had a more lucrative phone offer, as well as a much more intense competitive environment with the iPhone being available at multiple carriers at multiple price points.

So, the fact that we were able to grow our gross adds in December indicates that we are improving on what we're trying to do, which is be more relevant to our target customers with the right communications and offerings.

So, we are pleased by that.

And we also, though -- and we came out with positive net adds in December, so that was great.

Having said that, we have seen an uptick in churn.

So, as we look into this year, we are continuing to see some progress on gross adds, but we are continuing to see somewhat elevated churn.

It is not terribly surprising to us, given the competitive environment.

And you can imagine that we are extremely focused on continuing to do the things that are going well for us, in terms of fighting for gross adds and getting some of those growing.

But also, churn mitigation and continuing to launch LTE, have the right smartphone offerings, sharpen our marketing tools, as well as really look to expand even where we fell, our points of distribution.

So, it's -- it is a story of two things, and we are going to continue to work on the things that are working well, and manage the churn.

Your next question, Simon, about the iPhone, I'll ask Alan to take that one.

I would say just, we are certainly more carriers, more price points that have more impact.

Yes, I think that is the short answer.

Certainly, the iPhone 4S launch had a bigger impact than the iPhone 4 launch at Verizon earlier in the year.

There is really a couple drivers there.

One is just timing, so this is the first iPhone launch in the fourth quarter.

Second, it is across multiple carriers.

And third, it is multiple carriers with iPhones at multiple price points.

And we didn't have that situation earlier in the year.

With regard to your last question on LTE data roaming, certainly something we are very, very focused on.

Really, two pieces have to actually come together.

One is, obviously, the agreement.

But the other is more on the device side.

Our first devices won't have the same LTE frequency as the larger national carriers.

So, as we move and evolve our devices over time, that will open up additional data roaming opportunities.

Okay, great.

Thank you.

Our next question comes from the line of James Moorman from S&P Capital IQ.

Please proceed with your question.

Yes, thanks for taking the questions.

First, just a little bit on your LTE rollout and the handsets you look to have.

You've heard Metro PCS yesterday talking, they look to really expand this, as they see price (inaudible) coming down in the second half.

But knowing that you, and I know you've been very disciplined with turning down the iPhone.

But how do you look at this, in terms of going after the real popular devices, versus going after the lower end devices?

And also, if you could just talk about what you're seeing, you are talking about going to metered data pricing.

Is this more just in anticipation of LTE, and higher data capacity?

Or are you seeing anything with the number of Android devices, and any strains on the network now?

Thanks.

Hi, this is Alan again.

So, let me take shared data pricing first.

As we have said in the past, we really have two main drivers around tiered data pricing.

One is to be able to provide a lower entry point for our customers to get into a smartphone.

The second is to monetize the growth in data usage; so that is for both EVDO and LTE.

With regard to LTE devices, certainly the first devices are going to be higher than our average smartphone cost.

We do expect those costs to come down fairly rapidly by the fourth quarter of this year, or the first quarter of next year.

And we expect, as we mentioned earlier, to launch about 6 to 8 devices this year, smartphones, tablets, modems, and WiFi hotspots.

And we expect the smartphone portion of that to become much more -- to be available at multiple price points by the end of this year.

Great.

Thanks.

We've time for one more question.

No problem.

Our last question comes from Sergey Dluzhevskiy from Gabelli.

Hi, good morning.

Hi, Sergey.

Just got a couple questions for you.

One question on your spectrum position.

If you can talk a little bit about your spectrum position, and whether you have sufficient spectrum in your estimates to meet kind of medium-term data needs of your customers, given the strong growth obviously that you are seeing and as you roll out LTE?

And at what point do you think you may need to add to your spectrum in a meaningful way?

And given recent spectrum language that came out from the FCC, what are the main sources of spectrum in your opinion that you will have realistic access to in the next few years?

Hi, Sergey, it's Mary.

A couple -- let me take the first part, which is, in terms of our spectrum, we feel we have a good 700 megahertz spectrum position.

It's not perfect.

We are going to look to continue to add to that, but between our 700 MHz with our partner, King -- King Street Wireless and our AWS position, that is what we're using to roll out LTE.

And in terms of our voice and data services, we've got strong -- a good spectrum position on the other frequencies.

So, we feel confident about our current spectrum position relative to our LTE rollout plans.

And we are going to continue to look for other sources of spectrum.

And as you indicate, whether it is spectrum that comes on the market through this current order, which will take some time, as well as just continuing to look at the marketplace.

We will keep our options open, but we feel good about our current position.

So, I think on the second part of your question, you were probably referring to the legislation that was signed earlier this week related to incentive options.

So, I guess our thoughts on that is, it's probably going to be some time before any of the spectrum is actually available for commercial use, since the FCC still needs some time to adopt auction rules, actually conduct the auction, broadcasters will need time to clear the spectrum, and so forth.

I don't think it's clear, at this point -- in fact, we probably won't know for some time what opportunities for spectrum acquisition those incentive actions might create for US Cellular.

That said, we are actually very pleased that the congressional negotiators reached agreement on incentive auction legislation.

We think, obviously, the need for additional spectrum is key to future delivery of broadband services, and so we applaud both Congress and the Obama administration for their work on what we think is a real crucial bill.

I think for now, it's monitor and stay close, and assess opportunity for US Cellular.

All right.

And last question on managed services and hosting space.

Obviously, you've had -- you've made a few acquisitions since (inaudible) and you indicated that you're looking for more acquisitions to add to your capabilities.

Could you talk a little bit more about your long-term strategy in the space?

And maybe what kind of services or solutions are you looking to add to your portfolio, and what kind of scale do you seek to achieve in this segment, in the medium term, let's say?

Sergey, this is Dave.

When we think about this service set, we believe that the distinction between telecom services and IT services continues to blur.

And so, our goal is to create a broad set of IT-like services that we can offer to our commercial customers.

We have the co-location assets now.

We have some of them.

We have the hosted application management services in OneNeck.

Obviously, there are other pieces that we think could be valuable, more cloud computing capabilities, having more capabilities relative to managing that server infrastructure for our customers, security services, those types of activities.

So, we can offer that complete package.

Where that likely stops is becoming -- we're not interested in becoming an application developer, as an example, a software developer, doing custom software applications.

That is not where we think that spots needs to be.

I think, we obviously haven't talked a lot about how large we expect that to be, but I think it is reasonable to assume that if you get into a business like this, you need to make it meaningful.

We have a large base of customers, commercial customers that we can go after.

So, our expectations are that we can continue to grow this business at a reasonable pace.

Thank you.

Thank you, Sergey.

All right, there are no further -- that was the last question.

I would like to turn the floor back over to Jane McCahon for closing comments.

Thank you all for your participation today.

Look forward to seeing you either at one of the upcoming conferences or at CTIA.

Thanks.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.