美國無線通訊 (USM) 2012 Q3 法說會逐字稿

Greetings and welcome to the Telephone Data Systems and US Cellular third quarter operating results conference call.

At this time all participants are in a listen-only mode.

A brief question and answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jane McCahon, Vice President, Corporate Relations for Telephone Data Systems.

Thank you.

Ms. McCahon, you may now begin.

Thank you Rob.

Good morning everyone and thanks for joining us.

I do want to make you aware of the presentation we have prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and US Cellular website.

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

This call is being simultaneously webcast on the Investor Relations sections of the TDS and US Cellular website.

Please see the website for slides referred to on this call including non-GAAP reconciliations.

The information set forth in the presentation and discussed during this call contain statements about expected future events and financial results that are forward-looking, and subject to risks and uncertainties.

Please review the Safe Harbor paragraph in our release, and the more extended version that will be included in our SEC filings.

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

Both companies plan to file their Form 10-Qs later, along with an 8-K related to the Sprint transaction.

We will be attending a number of conferences in the near term, including UBS in New York in early December, and Citi in Las Vegas in early January.

As always, please keep in mind that TDS has an open door policy.

So if you are in the Chicago area and would like to meet with members of the management team from TDS, US Cellular, or TDS Telecom, the IR team will try to accommodate you, calendars permitting.

I would like to turn the call now over to Ken Meyers.

Good morning.

And thank you for joining us today.

We know it will be a busy day for most of you, and we appreciate your time and interest.

We have been talking for some time now about our ongoing work to identify and assess potential actions to enhance shareholder value.

Today the team will talk about one more step we are taking to improve long-term returns at US Cellular.

We've been work on it for some time and it will be a while to complete.

In the meantime, we continue to actively evaluate other potential actions.

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

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

Mary?

Thank you, Ken.

This morning we announced that we entered into an agreement to sell certain of our Midwest markets to Sprint.

The sale includes PCS spectrum and 585,000 customers, or about 10% of US Cellular's total customer base.

I will talk to you first about why we decided to enter into such a transaction, and then Steve will discuss terms and financial details.

We are focused on putting US Cellular in a position to accelerate growth, and over time improve margins and return on capital.

This transaction allows us to put our focus on markets where we have strong positions, and exit underperforming markets.

We remain committed to providing our remaining 5.2 million customers with a differentiated wireless experience, which has led to our strong customer satisfaction.

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

Regardless of the economics, however, it was a difficult decision.

Our associates in these markets are passionate and dedicated.

Throughout the transition process, we will treat our associates in these markets with the utmost respect, and will continue to provide outstanding service to our customers during the transition period as well.

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

Beyond these proceeds, we retained our direct or indirect ownership interest in our own tower portfolio and other spectrum in the transaction markets.

Now we also announced this morning that we will transition our call center in Bowling Brook, Illinois to a vendor partner effective January 1st.

This action will allow us flexibility to better manage our call volumes, and reduce facilities expense by more than $3 million annually beginning in 2014.

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

Now I will turn the call over to Steve to discuss the terms of the transaction.

Thank you Mary, and good morning everyone.

I will provide a brief overview of the transaction at this point, and you will be able to find more detailed information in the Form 8-K filing that we will be making later, along with the purchase and sale agreement that is an exhibit to the Form 8-K.

So first, at closing, Sprint will pay US Cellular $480 million.

As Mary mentioned, the sale includes most of the PCS spectrum, and 585,000 customers in our Chicago, St.

Louis, central Illinois, and Indiana, Michigan, Ohio markets.

The sale also contemplates a number of related agreements, the most significant of which are two transition services agreements, one to cover network operations, and the other customer services, under which the terms will provide for US

Cellular to continue to operate the network and service and bill customers for up to two years after the closing.

Sprint will pay US Cellular for these services.

Sprint will also reimburse US Cellular for certain costs related to decommissioning the network and employee termination benefits up to a defined cap.

US Cellular will be responsible for store closing costs, including employee and termination benefits.

The map on page seven of the deck illustrates the markets that are included in the transactions.

The Boards of Sprint, TDS and US Cellular have already approved the transaction.

We now need approval from the Federal Communications Commission and the Department of Justice.

Subject to these approvals and the satisfaction of other customary and negotiated terms and conditions, the closing is expected to be completed by mid-2013.

Moving to slide nine then, where we show selected pro forma information, the transaction markets account for approximately 10% of our total customers, and 11% of service revenues.

Postpaid churn in these markets, however, was nearly twice the level of our other markets, resulting in a disproportionate share of our subscriber losses.

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

These markets have a penetration of 3.9% overall, versus the average of 16.2% for our remaining markets.

Therefore this group of markets had lower margins than our core markets.

And, in fact, after all direct and indirect costs, including allocations of corporate overhead, they incurred losses.

Due to the accounting treatment for the transaction, coupled with the requirements of the transition services agreements, any immediate benefit to margins will be difficult to see.

Additionally, with only 20 megahertz of spectrum, our path to LTE would have been very expensive.

In accordance with the accounting requirements under GAAP, we will not classify these markets as discontinued operations.

I recommend that you review the Form 8-K that we will be filing later, which has more detailed information about the transaction.

Now I will turn the callback to Mary to recap the benefits of this transaction.

So in closing I want to reiterate how this transaction will position US Cellular to compete more effectively.

We will be smaller but more profitable.

We will be able to focus even more on our target segments in our remaining markets, where we have stronger market positions, and to provide customers with a great nationwide network, unmatched customer service, and rewards and benefits that are unique in the industry.

We will be moving closer to our long term financial objective of earning a return on capital equal to our weighted average cost of capital.

This transaction also enables us to further enhance shareholder value.

We will generate funds for this transaction and have retained other valuable assets in those markets, and over the coming months together with our Boards we will evaluate the opportunities available for us to strengthen long term prospects for our Company.

Now I would like to move to the financial results for the quarter.

We had a number of successes and challenges that I will cover.

So turning to slide 12, in terms of successes we have seen another strong quarter of customer adds, with postpaid gross 7% and prepaid growing 71% year-over-year.

On the postpaid side, this has been driven by a combination of our new marketing efforts, their increasing awareness of our unique proposition, a very strong device portfolio including the launch of the Samsung Galaxy S III at the same time as other carriers, improve promotional and sales effectiveness, and the continued expansion of our 4G LTE network.

We added 57,000 net prepaid customers in the quarter, and we attribute our success to the strong performance of the U prepaid product that we launched in WalMart in mid-May.

Our early analysis indicates that most of the activations at WalMart are incremental business, as we are now able to serve the growing number of customers that want to shop for wireless in big box retail environments.

Leveraging that relationship, we also began selling postpaid service in over 400 WalMart stores in October.

Our migration to 4G LTE is proceeding smoothly with strong performance in system availability, speed, and overall customer experience.

Also the adoption of 4G LTE devices is occurring faster than we expected, in the quarter we sold 267,000 4G devices, including smartphones, modems, and hot spots.

A number of these devices are being sold in 3G markets, which means that once the 4G network is launched, customers can experience 4G speeds immediately, while the Company benefits from a much more efficient network and an immediate offload of some 3G congestion.

Turning to slide 13 to some of our biggest challenges in the quarter, postpaid churn has remained elevated, and there are two main drivers for this.

First there is the segment of customers who churn for the iPhone, and that trend has continued with the launch of the latest version.

Second, in this weaker economy we see price conscious customers migrating from postpaid to prepaid offerings.

To address this issue we are doing two things.

First we are certainly highlighting to our customers the benefits of our cutting edge devices and the Android platform.

In addition we have enhanced our analytic capability in order to significantly improve our ability to identify potential defectors.

We then target these customers with relevant messages and attractive offers to retain them and then in some cases, to win back customers who recently defected.

Over time we expect these efforts to bring churn down to more acceptable levels.

Device subsidies were another challenge.

The good news is that we are selling both more smartphones which represented 53% of devices sold in the quarter, and more 4G LTE devices driven by the success of the Samsung Galaxy S III, this will provide longer term benefits in ARPU and network efficiency.

However, the higher subsidies resulting from more smartphone sales and the higher cost of the 4G devices hurt profitability in the quarter.

Also, as expected our profitability is being impacted by a reduction in the ETC revenues as a result of the phase-out of the Universal Service Fund support.

As you recall, such support is being phased out at a rate of 20% per year beginning in July 2012.

Expected reduction to the time margin revenue stream for the second half of the year is approximately $60 million.

Continuing on to slide 14, in terms of building awareness of US Cellular and differentiating in the marketplace, we launched our Hello Better advertising and marketing campaign in July.

Hello Better was designed to break through to our target customers and highlight the entire US Cellular customer experience, including our key differentiators.

According to our quantitative end market advertising measures, we are seeing a 40% improvement in awareness over the prior campaign.

We are confident that Hello Better has put us on the right track towards increasing US Cellular's awareness and consideration among switchers in the wireless marketplace.

Additionally, we have driven exceptional growth in the engagement of our customers and potential switchers to online and social media channels.

We have dedicated customer service and sales teams, and we are focused building out online communities at the local level as well.

We recently launched an innovative campaign called Call Someone Who Cares, where we specifically reach out to dissatisfied customers of other carriers, and let them know in song that US Cellular was the better alternative.

It is on YouTube if you want to take a look.

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

As shown on slide 15, we are very pleased with our WalMart results, and as customer growth is largely incremental, going forward we will be looking for additional opportunities to expand and optimize distribution.

Our 4G rollout is proceeding as planned.

At the end of the quarter we covered 30% of our customers, we have just begun to light up our Wave 2 markets, and are on track to reach 58% of customers by year-end, and we now expect that by the end of 2013, we will cover approximately 87% of our customers.

And we are preceding these markets with 4G phones, so that we can get the benefits as soon as the market is turned on.

In terms of device availability, we have launched the Galaxy S III and Samsung Galaxy Note II at virtually the same time as other carriers.

The GS III is an incredibly popular device among both switchers and current customers, and we saw strong gross add performance in the weeks following the launch.

We attribute that to the combination of cutting edge technology and our unique customer experience.

We are proud of our positive net add performance for the quarter, and confident in our strategic direction and excited about our plans for the crucial upcoming holiday season.

At the same time, we are firmly grounded in the challenges we face, and are working on a range of initiatives to stabilize our postpaid customer base and improve cash flow.

I will now turn the call over to Steve.

Okay.

Picking up on slide 17, US Cellular's results for the quarter reflected mixed customer results, as we improved postpaid gross additions, but are still challenged with retaining postpaid customers in this extremely competitive market, and the somewhat still sluggish economy.

Prepaid gross and net additions improved significantly due to success of our U prepaid offering through WalMart.

Service Service revenues were flat year-over-year as the impact of higher ARPU was offset by reductions in the average customer base and ETC funding.

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

As shown on this slide, third quarter retail gross additions were 350,000, up 23% from 284,000 in the prior year quarter.

In the postpaid segment, there was a net loss of 38,000 customers, as a 7% increase in postpaid gross adds was offset by an increase in defections.

In the prepaid segment, we did much better than a year ago, adding 57,000 customers.

So in total, we gained 19,000 net retail customers in the third quarter this year, compared to a net loss of 23,000 last year.

Postpaid churn shown on the next slide increased to 1.72% from 1.55% last year.

As Mary already commented, we attribute this increase to the expanded distribution of the iPhone, and aggressive promotions and new plans by the competition.

Additionally, we continue to do see some migration from postpaid to prepaid offerings.

Slide 19 shows the trends in smartphone sales penetration and postpaid ARPU.

During the third quarter, we sold 487,000 smartphones which represented 53% of total devices sold.

This compares to the third quarter of 2011 when we sold 356,000 smartphones, or 40% of the total units sold.

243,000 or 50% of the smartphones sold this quarter were 4G LTE devices.

Smartphones now represent 39% of our postpaid subscriber base, compared to only 26% for the same period last year.

And while the overall cost to subsidize smartphones, especially the 4G devices is greater, we expect that the higher ARPU and migration of data usage off of our 3G network onto the 4G LTE network will benefit our results over time.

As you can see on the graph at the far right, there has been a steady upward trend in postpaid ARPU for the past several quarters.

We did see a very slight decline in ARPU sequentially, which was primarily due to a decrease in the USF contribution rates that we bill our customers.

However, the year-over-year growth that we have been achieving right along continued in the third quarter, with an increase of 4%, and we expect to see both sequential and year-over-year growth in the fourth quarter.

Turning to our financial performance, service revenues for the quarter were $1.036 billion which is flat with last year.

Breaking that down a bit further, retail service revenues were $884 million, an increase of 1%, with billed ARPU growing 4% year-over-year.

Inbound roaming revenues decreased about $2 million, or 2% year-over-year to $106 million.

An increase in inbound data usage was offset by lower inbound voice usage, lower rates for both data and voice, and the loss of some roaming revenue from a market that we sold in the first quarter of this year.

The decrease in roaming revenues was offset by savings in outbound roaming expense, which is included in our system operations expenses also due to lower rates.

Looking out, we expect continued growth in data roaming usage, inbound and outbound, but both lower revenues and lower expenses due to lower rates.

On a net basis, we expect the lower rates to be neutral to OCF in the short term, but to provide a positive benefit over the long term.

Other revenues were $46 million in the quarter, down 20% from a year earlier, reflecting a significant drop in ETC revenues as a result of phase-out of Universal Service Fund support.

As Mary mentioned and as you will recall, such support is being phased out at the a rate of 20% per year beginning in July 2012.

System operations expenses of $249 million were up $7 million, or 3% year-over-year.

This was due to several factors, including expenses associated with the deployment of the 4G LTE network, a 2% increase in the number of cell sites and service, and higher on-net data usage as our customers use more data services.

Roaming expense, however, declined a bit as the higher off-net usage was more than offset by lower rates.

As data usage continues to grow rapidly, we have implemented a number of measures designed to minimize the impact on our expenses.

Loss on equipment for the quarter was $144 million, up $22 million or 18% from last year, primarily as a result of increased smartphone sales, and the higher costs related to 4G LTE devices.

Average loss per device sold increased year-over-year, due primarily to the shift in mix to smartphones, as these devices were 53% of sales versus 40% last year, and in total we sold 37% more smartphones.

We expect that equipment pricing will continue to be very aggressive across the industry, and that our costs will be impacted by the continuing shift in mix to smartphones, and the continuing introduction of 4G devices throughout the year.

Keep in mind that we are selling 4G devices in our 3G markets now, so that we can capture the cost savings immediately when we launch 4G services in those markets.

SG&A expenses of $439 million were flat year-over-year, as we continue to control these costs as tightly as possible.

Operating cash flow for the third quarter of $205 million was down 12% compared to last year's $234 million.

The operating cash flow margin was 19.7% compared to 22.5%.

Total investment and other income net for the quarter totaled $16.5 million, including earnings of approximately $18 million related to our investment in the Los Angeles partnership that was up from $17 million last year.

That income attributable to US Cellular shareholders totaled $35.5 million, or $0.42 per diluted share, versus $62.1 million, or $0.73 per share in 2011.

The effective tax rate for the third quarter this year was 34.7% compared to 38.4% last year.

That rate was lower this year due to a tax benefit related to a correction of state-deferred taxes.

For the full year 2012, the effective tax rate is expected to be about 33%.

For the third quarter, we generated cash flow from operating activities of $197 million, down from $301 million last year.

Cash used for additions to property plant and equipment in the quarter was $181 million, reflecting significant expenditures related to our 3G and 4G LTE networks, as well as for our multi year enablement initiatives, primarily our billing system conversion.

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

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

Our guidance for the full-year 2012 is shown on slide 22.

As you can see, we narrowed the range for service revenues to $4.075 billionto $4.125 billion, and the range for operating cash flow to $800 million to $850 million.

We continue to expect capital expenditures of approximately $850 million.

Factors impacting our results for the remainder of the year will be the reduction in ETC revenues I already mentioned,higher LOE and other selling and marketing expenses associated with heavy promotional activity during the fourth quarter holiday periods, and continuing increased expenses related to the implementation of our new billing and operational support system scheduled for implementation in 2013.

As we explained in the footnotes, these estimates are before the effects of the Sprint transaction.

They currently estimate that we will incur incremental operating expenses in the range of $30 million to $60 million related to this transaction.

And now I will turn this call over to Vicki Villacrez to cover TDS Telecom's results.

Thank you Steve, and good morning everyone.

Turning to slide 24, I would like to give you an update on TDS Telecom's major business developments and their impact on our outlook for the remainder of the year.

We continue to integrate the operations of our most recent acquisition Vital Support Systems into our growing HMS operations.

As I mentioned last quarter, we aim to build on our existing data center infrastructure and strengths in providing hosting and cloud services.

We will leverage these capabilities with Vital Sales and engineering skills, including their suite of products and services to provide customers with an end-to-end solution to their IT needs.

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

We fully expect to see these efforts begin to pay off as we enter 2013, as top line growth as not yet met our expectations.

This shortfall is the primary reason we have lowered our operating cash flow guidance.

In the third quarter, we begin to see the full impact of all of the moving parts of the SEC reform order, principally on the ILEC.

This includes recovery mechanisms on the revenue side, and reduced reciprocal compensation expense, which are reducing the impacts of the declines in revenues resulting from the reform order.

On a net basis ILEC operations lost $0.4 million in margin for Q3, and $3.8 million year-to-date related to the reform order.

However, declines in minutes of use continued, and rate of recovery and other components of regulatory revenues decreased margin by $4.7 million for a total cash flow impact of $5.1 million.

These impacts have been ongoing and are not related to the reform order.

Our expenses have been growing at a higher rate than our revenues.

This is due to several key initiatives we have under way as we move to expand into the new IPTV markets, as well as develop our HMS infrastructure and the products and services to grow the HMS operations.

We believe that this investment is necessary in order to be successful in these new ventures.

However, additional steps we are taking in the fourth quarter, which include targeted reductions in our cost structure, should help improve this trend going forward.

With respect to IPTV, we now provide service in seven markets as of September 30th.

Our market rollout plans continue to move slowly, as our more rigorous plant upgrade activity has been needed to enable our copper network and prepare other infrastructure for IPTV services.

By year end TDS TV will offer service in ten market, and will pass approximately 65,000 households in total.

While in the early stages of our recent launches, we remain excited about our IPTV service, which is meeting our high expectations for customer take rates, and we will look to expand service within these markets in 2013.

As an example of how our IPTV product rollout has been going, let me give you a little color around one market in Saint Mary's, Georgia.

In March TDS began to sell and install TDS TV in this exchange, which currently has 11,600 service addresses enabled for IPTV.

As of September 30th, the market has 900 TDS TV subscribers, or about 7.5% of the enabled households.

Our strategy to develop new sales channels and use an integrated marketing approach has been very effective in attracting new subscribers.

And 95% of TDS TV customers subscribe to the Triple Play, which delivers the features that customers demand.

Almost half of the customers are purchasing the highest tiered products.

We are offering for both Internet speeds and channel packages.

As shown on slide 26, our hosted and managed services segment drove TDS Telecom's revenue growth through acquisitions.

The number of ILEC and CLEC connections continues to decline, and losses in high margin regulatory and wholesale revenue streams outpaced growth in data, video, managed IP and HMS.

Consolidated cash expenses were up 16% for the period, primarily due to the acquisition effects, costs associated with our system improvement activities, the expansion of IPTV, and developing infrastructure and new products and services for HMS.

All-in, operating cash flow for the quarter was $58.9 million, a decrease from the $71.2 million achieved in 2011.

Turning to slide 27, now let me discuss each segment.

ILEC revenue decreased 5% overall.

Residential revenues were flat with last year as voice line losses were mostly offset by increases in data connection.

ILEC commercial revenues also ended flat as strong growth in managed IP connections outpaced voice line losses and the small ARPU decline.

In the quarter, wholesale revenues declined $7 million, a 12% decrease, primarily as a result of changes in regulatory recovery due to the reform order wholesale rates and an increase in relative amount of voice traffic, coupled with the continue decline in intrastate minutes of use.

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

Turning to slide 28, ILEC residential broadband subscribers increased 1% year-on-year adding to an already high penetration rate to reach 65% of primary residential lines at the end of the period.

69% of these customers are taking speeds of 5 Megabits or greater, and 24% are taking speeds greater than 10 Megabits.

Residential broadband ARPU has trended upwards to $38, as migration to higher speed service offsets competitive pricing pressures.

On the residential side, our store voice packages continue to help us mitigate line loss.

At the end of September, we had 204,600 customers on these plans, or 59% of our residential customer base, which is up from 55% at this time last year, helping to stabilize voice ARPU.

On slide 30 we continue to emphasize our Triple Play bundles, voice, data, and video.

With video offered through DISH Network and increasingly through our own IP TV service, TDS TV.

Triple Play subscribers now represent 31% of our ILEC residential customers.

Churn on our Triple Play customers continues to remain very low at roughly one-half a percent per month.

70% of our residential customers are on a Double or Triple Play bundle,up from 66% last year.

Churn for a Double Play customer while not as low as a Triple Play, is still significantly lower than churn with a single service.

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

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

Turning to the HMS segment on slide 33, acquisitions increased revenues by $19.3 million, and expenses by $18.6 million.

As I discussed earlier, we are investing in the infrastructure, support systems, and development of new products and services, causing expenses to be higher.

Slide 34 shows our 2012 guidance.

We have tightened our revenue guidance by lowering the top end by $20 million to a range of $850 million to $860 million to primarily reflect lower HMS expectations.

We have lowered the range on operating cash flow to reflect year-to-date results in the HMS business, and higher costs as we implement IP TV.

As discussed earlier, we have taken steps in the HMS segment to reduce further costs as we integrate across our four acquisitions.

We are also planning targeted reductions in the ILEC and CLEC segments, as we continue to adjust our cost structure which will result in additional severance charges in the fourth quarter.

We have tightened our outlook on capital spending to a range of $175 million to $190 million to reflect the spending to date.

Reflecting the changes above operating income is now estimated in the range of $40 million to $50 million.

Now I will turn the call back to Jane.

Thanks, Vicki.

Now we would like to open it up for questions.

I do want to let you know that Mary Dillon had to step out.

She has got some other audiences she needs to speak to this morning, but we asked Dave Kimbell, our CMO, to join us for questions.

Rob, please go ahead.

Thank you.

(Operator Instructions).

Thank you.

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

Please proceed with your question.

Good morning, this is actually Charlie Castillo sitting in for Ric.

When you guys talk about in the transition markets are actually at an operating loss, would that also be for EBITDA as well?

Yes, it would.

Okay.

Thank you.

And as you move the, I guess basically the spectrum of customers over, and you are maintaining the towers, the old CDMA equipment hanging on those towers currently, I guess you retain ownership of that as well.

Is there any way you can sell them, or kind of what happens to that?

Yes.

So you are right.

As we said, we will be retaining the network as part of the transaction and we will operate it to provide service to Sprint during this transition period for up to two years.

Working with Sprint, we will determine to what degree and the timing of decommissioning that network, and those assets retain in the ownership of US Cellular, and we would certainly attempt to recover all the value that we have from the network equipment per se, and then we will explore options that we might have with respect to the tower portfolio.

Right.

Can you actually tell us what the cap is that in terms of what Sprint can pay you for the reimbursals and to operate the network?

Well, again, at some point I will encourage you to look at the SEC filings that will have a fair amount of detail of what is included in the cap.

But generally speaking, it is designed to cover costs such as cell site lease and termination expense, termination related to the back haul, and so forth.

And there is a cap of $200 million on those expenses.

Okay.

Great.

And final question.

In general, as we look at your overall tower portfolio now that you are around 4,500 towers, could you tell us kind of what is the design capacity of those towers for tenants?

Like are they two tenant towers or four tenant towers?

I can't answer that question as we sit here today.

The portfolio consists of multiple designs, some rural 250 to 300-foot towers, some urban monopoles.

So there isn't a nice, clean average I can give you on that.

Okay.

I appreciate it.

Thanks, guys.

Thank you.

(Operator Instructions).

Thank you.

Our next question is a follow-up from the line of Ric Prentiss.

Please go ahead with your question.

Thank you.

I am just jumping in for one more then.

For the naming rights on the ballpark, when does that contract expire, and kind of what are your thoughts on that as basically I guess you no longer need to market in Chicago going forward?

Hi, Charlie, this is Dave Kimbell.

We have had a long-term relationship with the White Sox.

We continue to be committed to Chicago.

We are headquartered in Chicago.

Even after this transaction, we are going to have 1,400 associates in Chicago.

So that relationship is not part of this deal, and we will not be changing.

Great.

Appreciate it.

Thank you.

Our next question is from the line of Robert Schiffman of Credit Suisse.

Please proceed with your question.

Great.

Could you just talk a little bit about plans for the balance sheet balancing, what you are considering in terms of enhancing shareholder value with credit ratings and debt issuance, and the like?

Thanks.

Good question there, Robert.

So number one, let's start with of the companies, both companies, financing philosophy is maintaining an investment grade rating.

That is something we have said many, many times, something that frames a lot of the decisions we look at, and that just gets back to a belief that it gives us greater access to markets when most needed, number one.

Number two, the Company has refinanced a lot of its debt.

There is, with the markets being where they are at today, there might be other debt that is at a higher price today than what might be in the market, and I think we will continue to look at items like that.

But no major changes are on the horizon right now.

And as a separate follow-up, what about additional assets for sale?

Is there anything else outside of towers from a spectrum perspective you are either looking to sell, or acquisitions that might provide tuck-in opportunities?

So, okay, again, one we constantly are in the market looking at various opportunities that are out there, number one.

Number two, we continue to look at our own portfolios as we did here, to see if there are places that we can strengthen that.

And three, as we have talked about at the TDS level, we continue to look for areas where we can strengthen the Company, and as that work evolves and comes to fruition we will be out talking to people, but there is nothing that I have got today that I can talk about in that area.

Thanks again.

Thank you.

There are no further questions at this time.

I would like to turn the call back to management for closing comments

We know today is an extremely business day.

Would I like to thank for your participation, and please let us know any follow-up questions.

We will be available for your call.

Thanks again.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.