美國無線通訊 (USM) 2013 Q4 法說會逐字稿

Greetings, and welcome to the TDS and US Cellular fourth-quarter operating results call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host today, Jane McCahon, Vice President of Corporate Relations.

Thank you.

You may begin.

Thank you, Latanya, and good morning everybody.

Thanks for joining us.

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

With me today and offering prepared comments -- from TDS, Doug Shuma, Senior Vice President and Corporate Controller; from US Cellular, both of whom are joining us from the World Mobile Congress in Barcelona: Ken Meyers, President and Chief Executive Officer; and Steve Campbell, Executive Vice President and Chief Financial Officer.

And from TDS Telecom, Dave Wittwer, President and Chief Executive Officer; and Vicki Villacrez, Vice President, Finance and Chief Financial Officer.

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

Please see the 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 release and the more extended versions in our SEC filings.

Shortly after we released our earnings and before this call, TDS and US Cellular filed SEC Forms 8-K, including today's press releases and also pro formas showing the impact from our market divestitures and the deconsolidation of our New York 1 and 2 markets.

TDS and US Cellular plan to file their SEC Form 10-K over the next few days.

On slide 3, you will see our upcoming conferences, including Morgan Stanley in San Francisco next week, on March 4; and Deutsche Bank in Palm Beach, Florida, on March 10.

Also 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 Management, the Investor Relations team will try to accommodate you, calendars permitting.

As we have had in prior years, we take the time on our fourth-quarter call for the CEOs of both of our business units to give you a brief recap of the year just completed; but more importantly, to share with you their strategic priorities for the coming year.

Before we turn the call over to Ken Meyers, Doug Shuma will spend a few moments on what we are focusing on at the TDS enterprise level.

Doug?

Thanks, Jane.

Turning to slide 4, our role at TDS is to actively manage the existing portfolio of assets, and you have seen numerous examples of us being more active like this in this endeavor.

We continue to work to identify new businesses, like cable and HMS, which offer higher returns and growth rates to strengthen our overall financial position.

Returning value to shareholders in accordance with our stated capital allocation strategy, through either dividends or share repurchases, remains a focus.

In fact, this morning we declared our March dividend, increasing the rate 5.1% over last year.

This represents the 40th consecutive year that we have increased our dividend, an achievement accomplished by only a handful of companies.

Our share repurchase activity during the fourth quarter was very modest, and although we said we would begin at a moderate rate, we expect amounts to be somewhat higher going forward now that we are out of earnings blackout -- subject, of course, to other restrictions.

In 2014, we will continue to work on additional strategic initiatives, including, but not limited to, the sale of the remaining nonstrategic spectrum at US Cellular at favorable valuations, and the modernization of non-strategic towers.

Going into 2014, TDS has a strong balance sheet that gives us financial flexibility to fund many of these initiatives.

And now, I'll turn the call over to Ken Meyers.

Ken?

Thanks, Doug.

Good afternoon from Barcelona, the site of the 2014 Mobile World Congress.

Just me and 80,000 others involved in the wireless industry, including vendors, operators, and regulators from around the world.

Besides seeing some great new products, like the Samsung GS5, I've also learned even more acronyms from my engineering friends during the week.

Before I begin my review of 2013 accomplishments, I'd like to discuss our decision, as announced in the press release this morning, not to give guidance for revenues and profitability for 2014 at this point.

This decision was based on a number of significant factors that have affected our ability to forecast with confidence.

Those factors include: one, the unprecedented number of pricing moves that have occurred over just the past several weeks.

As you know, given our size, US Cellular has mostly been a price taker and we are in the midst of developing our competitive responses.

Looking ahead, we also believe there's a high degree of uncertainty about that pricing environment over the next few quarters.

Two, related to this is our plan to introduce device financing to the second quarter.

Different provisions in these plans can change the timing of revenue recognition dramatically, even though the economic impact over the life of the plan is the same.

Service plan pricing related to these offerings can also impact revenue recognition.

And we are currently in the midst of finalizing our offerings in that area.

Three, as we have discussed, we have been, and are currently experiencing, elevated churn, at least in part due to the recent billing system conversion.

We have aggressive plans to bring churn down quickly over the next few months, but cannot predict with accuracy just how quickly we will achieve those results.

Those three factors, combined with others, led us to the conclusion that we cannot forecast revenue and AIBIT, or adjusted incomes before income taxes, for 2014 at this time with the degree of confidence that we require and you expect from us.

As the year progresses, we will reevaluate our ability to provide guidance for those two measures.

We are, however, providing guidance for capital expenditures at this time.

We expect those expenditures to be approximately $640 million, down 13% from the $738 million we invested in 2013.

To help you in thinking about our prospects and outlook for 2014, and to be as transparent as possible about our future results, I'd like to provide you with some insights into the current trends that we are seeing.

We are having success attracting new customers to US Cellular.

Postpaid gross additions so far this year are up nicely over last year.

In the area of churn, we are currently seeing a shift from voluntary -- customers leaving us on their own accord -- to involuntary, those that we are shutting off due to nonpayment.

Postpaid voluntary churn has remained elevated, but has stabilized, and even started showing modest improvement since hitting the peak during the fourth quarter.

For involuntary churn, we [to bit] we had been extending payment terms to allow time to clear up any customer questions about their bills, but we are now starting to catch up on nonpayments.

We are optimistic that once we have worked through that backlog over the next few months, we will begin to see total churn moving down.

Now, moving on to slide 6, we saw a lot of change in 2013 -- changes in our networks, our systems, our product offerings, our management team, and our strategic focus that, when combined, create a foundation for the future that I am excited about.

On the network side, we now cover nearly 90% of our customers with 4G LTE, using both 700-megahertz licenses and our original 850-megahertz cellular licenses.

Our 850-megahertz LTE network, an industry first, allowed us to launch the iPhone in November.

The iPhone was just one of the new products and services rolled out in 2013.

We also introduced the Samsung GS4, the Samsung Galaxy Note 3, and the Moto X, and we rolled out shared data plans in October.

The iPhones, shared data, and device financing are just a few of the new products and services enabled by the new billing system, which was launched last year.

As we discussed, despite the new capabilities of the system, this launch has not gone as smoothly as anticipated, and efforts to remediate have not progressed as quickly as we want.

We continue to resolve defects and believe we are making progress on these system issues.

As I said earlier, we expect to see continued pressure on churn for the next few months.

Steve will comment on the financial impacts of the conversion issues later in our presentation.

Getting back to products and services, we continue to migrate our customer base to smartphones, allowing them to get more and more data services on our high-quality LTE networks.

As of year end, 51% of our customers had smartphones, and more than 80% of those smartphones were now LTE-enabled.

While we just launched our shared data plans in the fourth quarter, we already had 5.5% of our customers on those plans at year end, and that number is currently about 8%.

All of these factors contributed to the growth in data traffic over the last year.

In our core markets, while total data traffic was up 97% year over year, the traffic on our LTE networks grew 11-fold, and now represents 50% of total data traffic.

In 2013, our customers used a total of 34.2 billion megabytes.

Another area of change last year was the management team here at US Cellular, and I'm real excited to have Jay Ellison back as a member of the team.

Jay joined us in November as Executive Vice President, leading the sales and customer service efforts.

His operational focus complements the technical and financial expertise of Mike Irizarry, our CTO; and Steve Campbell, our CFO.

We all share a passion for serving the customer, and we are actively reigniting that passion across the Company.

Also in 2013, we completed the sale of our Chicago and St.

Louis properties, along with a few other smaller markets, for $480 million; and then returned the money to US Cellular shareholders through our first ever special dividend.

We have also sold, or have agreement to sell, other nonstrategic spectrum for about $400 million.

All in all, there was a lot of moving pieces in 2013.

We challenged our organization, and they responded well.

Now, on slide 7, you can see our priorities for 2014, which I will expand on in further detail on the following slides.

Driving subscriber growth, on slide 8, is our highest priority for this year.

Our belief that we can do this is based upon the following: first, we have the best device lineup we have ever had; absolutely no significant holes.

Second, we have and will maintain competitive pricing plans, with more innovation yet to come.

Three, we will continue to enhance and expand our distribution, especially through new relationships with national retailers.

Four, our 4G LTE network is now available to 87% of our customers today, and we expect that to expand that to over 93% during the year.

And finally, we are committed to resolving the billing system issues and returning to providing our customers the exceptional customer experience US Cellular is known for.

And we have a team of associates dedicated to getting back to that job.

As you can see on slide 9, our value proposition revolves around the network.

We intend to capitalize on the quality of our network and deliver data products and services, like shared data plans and connected devices and applications, which leverage our network.

US Cellular has always differentiated itself by providing an exceptional customer experience.

The idea behind membership is that we will ensure customers get a special experience, and we will continue to recognize customers with rewards points.

And lastly, we plan to leverage our local knowledge and create a differentiated localized experience for our customers.

This focus on the customer will be even sharper in 2014 in our mid-size and rural markets.

Our objective is to make ourselves even more relevant to wireless customers in places like Wisconsin, Iowa, Maine, and Nebraska, to name a few.

We are confident that all of these components in depth, together with our network at the core, will make the US Cellular value proposition resonate with our current customers and be attractive to new customers.

Slide 10 -- in order to improve margins, we must turn around our subscriber results first.

We also must drive additional revenue growth on top of that.

Adding the iPhone to our smartphone portfolio will help us to accelerate smartphone penetration.

We have plenty of headroom on this front, with almost half of our base still on feature phones.

Shared data plans should allow us to capitalize on skyrocketing data consumption.

Connected devices provide an opportunity to increase data usage, and less revenue per count without significant subsidies.

All of these activities should translate into additional data revenue and average revenue per unit.

As I said, though, there has been a significant number of price moves in the last few months.

Given our size in the industry, we tend to be more of a follower in this area.

We will continue to adjust to our environment and ensure our customers get not only the best network experience in all of our markets, but also receive a very competitive value.

And finally, slide 11, we will look to offset the increase in subsidy amounts caused by more expensive 4G devices through a program such as device financing, which we will be rolling out in the first half.

We believe we have all the pieces in place to stabilize and then to grow our customer base in 2014.

Headwinds related to the full-year impact of iPhone subsidies, as expected, will impact profitability.

Yet capital spending will come down as our build-out of 4G LTE nears completion.

All in all, 2014 will be an exciting year for US Cellular.

Now, to go into further details let me turn the call over to Steve Campbell.

Steve?

Thank you, Ken, and hello, everyone.

I am going to begin with a few comments about US Cellular's core markets, which for purposes of this discussion, exclude the New York 1 and 2 markets that we deconsolidated in April of 2013; and the markets that we divested in May of 2013.

As shown on slide 12, postpaid gross additions were 176,000, a decline of 32,000, or 15%, compared to a year ago.

Churn for the quarter was 1.91%, up from 1.68% last year, resulting in a postpaid net loss of 71,000 customers for the quarter.

A number of factors impacted these results.

The billing system implementation and subsequent disruption impacted our ability to add customers at times, and also caused customers to churn.

The other major factor during the quarter was the relatively late launch of the iPhone.

If you recall, the four national carriers began selling the new devices on September 21, while we launched the product line on November 8, some 7 weeks later.

We also experienced some inventory constraints on certain models.

Prepaid net losses in the core markets were 26,000, down from net additions of 37,000 last year.

And as you may remember, in 2012, we had just launched prepaid in Walmart, so there wouldn't have been any churn at that time.

Total retail customer net losses in the core markets were 97,000, compared to 18,000 net additions last year.

Slide 13 shows the trends in smartphone sales and penetration in our core markets.

During the fourth quarter, we sold 619,000 smartphones, which represented 80% of total devices sold.

This compares to the fourth quarter of 2012, when we sold 571,000 smartphones, or 63% of the total units sold.

And 537,000, or 87%, of the smartphones sold in the fourth quarter were 4G LTE devices.

247,000, or 40% of the smartphones sold in the fourth quarter were iPhones.

Smartphones now represent 51% of our postpaid subscriber base.

That compares to 41% for the same period last year.

Next, looking at the graph on slide 14, you see that postpaid ARPU of $53.53 for the fourth quarter decreased approximately 1% from the comparable quarter last year.

However, this year's result was affected by the special reward points loyalty bonus, equivalent to $43.5 million, that we gave to customers in December, and by other billing credits and write-offs related to the billing system implementation issues.

Excluding the impact of those adjustments, postpaid ARPU actually increased about 8% year over year.

Although the overall cost to subsidize smartphones, especially the 4G LTE devices, is greater, we expect that the higher ARPU from smartphone users, as well as the migration of data usage off our 3G network onto our 4G LTE network, will benefit our results over time.

We also expect our new shared data plans to better capture data usage revenues, especially from high data usage customers.

In addition, future device financing options are expected to offset a higher proportion of increasing equipment costs.

Turning now to our financial performance, beginning on slide 15: for our core markets, fourth-quarter service revenues were $825 million, down $42 million, or about 5%, from last year, primarily due to a decline in retail service revenues billed to customers.

Those revenues declined about $36 million, reflecting the special reward points loyalty bonus and other billing credits and write-offs that I mentioned earlier.

Excluding the impact of those adjustments, service revenues would have increased by $16 million, or 2%.

Roaming revenue declined by $2 million, as lower rates and voice volume more than offset the impact of higher data volumes.

We are working on 4G roaming trials and commercial negotiations right now, and we're optimistic about future roaming revenue growth.

We also launched about $8 million year over year, due to the ongoing phase-down of ETC support.

Exactly where this program goes next is still somewhat uncertain, but we're going to continue to work with regulators to ensure that wireless is not disadvantaged in any new programs.

We believe that wireless has a critical role to play in bringing broadband services to unserved areas.

And certainly no one can argue its economic advantage over wired choices.

Total Company financial performance is shown beginning on slide 16.

As shown roughly 2/3 of the way down the page, we incurred an operating loss of $31 million for the quarter, which represents an improvement of about $30 million from the operating loss of $61 million in 2012.

The overall improvement reflects a gain on licensed sales of $255 million.

Service revenues were $825 million, down about $184 million, from just over $1 billion last year.

The decline includes the $42 million decline in the core markets that I just discussed, plus the impacts of the divestiture and deconsolidation transactions.

System operations expenses of $177 million decreased $44 million or 20% year over year.

About $38 million of the decrease is due to the divestiture and deconsolidation transactions.

Other factors included reductions in areas such as lower intercarrier charges due to bill and keep arrangements, and lower fees paid to platform and content providers.

The loss on equipment for the quarter was $269 million, up $66 million or 33% from the year-ago quarter.

Although we sold fewer devices in total, consistent with the lower gross adds, there was a continuing shift in mix to sales of smartphones and to 4G LTE devices.

As a result, the average loss per unit sold increased by 66% from $205 to $341.

We expect 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, the introduction of additional new 4G LTE devices this year, and increased sales of iPhones.

However, device financing may offset a portion of these increasing equipment costs.

SG&A expenses of $443 million were down $6 million, or 1%.

That's a net number, reflecting a reduction of $52 million related to the divestiture and deconsolidation transactions, offset by an increase in bad debt expense due to higher customer accounts receivable balances, and higher expenses associated with our billing system implementation.

Total investment and other income net for the quarter totaled $22 million, up $9 million from last year.

Earnings of $17 million related to our interest in the Los Angeles partnership increased by $5 million; and New York 1 and 2 contributed $6 million of current-quarter equity-basis earnings.

Adjusted income before income taxes for the quarter was a loss of $45 million compared to income of $154 million last year.

As I mentioned, this quarter's operating income, and therefore, AIBIT, was impacted by certain costs and expenses related to the divestiture transaction.

As shown on slide 17, the impact was a reduction to income of $41 million, consisting largely of accelerated depreciation, amortization, and accretion.

Period for recording accelerated depreciation, amortization, and accretion ended on January 31, 2014, so this expense will be significantly reduced in the future.

As shown on the next slide, net income attributable to US Cellular shareholders totaled $1.6 million, or $0.02 per diluted share, versus a net loss of $39.6 million, or $0.47 per share in 2012.

For the quarter, cash flow from operating activities was negative $5 million, down from $291 million last year.

This was affected, of course, by the delayed billings mentioned by Ken earlier, which affected cash inflows.

Cash used for property, plant, and equipment in the quarter was $196 million, reflecting significant expenditures related to our 4G LTE network, including the 850-megahertz band expansion; as well as for additional data center capacity to support data growth.

Free cash flow for the quarter was $201 million negative.

US Cellular's balance sheet remains very sound.

Accounts receivable are higher than normal due to the delayed billings, but that situation has now stabilized, with more timely billing and increasing cash collections.

We expect that accounts receivable balances will decline to more normal levels over the next several months.

We've got significant liquidity and financial flexibility, together with expected cash flow from operations, to meet our financing needs in the future.

In addition, we've got cash and short-term investments totaling $392 million at December 31, and we have about $280 million of unused borrowing capacity under our revolving credit agreement.

And now, I'll turn the call over to Dave Wittwer.

Thanks, Steve, and good morning, everyone.

I'll briefly highlight our accomplishments in 2013, and then outline our strategic priorities for 2014.

On slide 20, in our wireline business, we learned a lot about rolling out IPTV.

We have now launched TDS TV in 11 markets, enabling nearly 93,000 total service addresses, and we've been very pleased with both the uptake and the ARPU.

Earlier in the year, we launched TDS TV in markets using copper-based facilities and fiber.

We experienced higher costs than expected readying the copper networks, and those findings, along with the long-term competitive advantage of fiber, mean that for the foreseeable future, we will be focusing our IPTV rollouts in markets where we can economically justify fiber to the home.

Accordingly, we have allocated a significant portion of our capital this year to fiber construction.

We have made excellent progress on our broadband stimulus projects, providing service in 23 markets.

We now can offer broadband to an additional 6,900 households, and expect to complete the remaining 21 markets in 2014, bringing the total households enabled through stimulus funding to 27,000.

When complete, 97% of our customers will have access to high-speed data.

2013 saw us enter the cable broadband industry with the acquisition of Baja Broadband.

Our cable strategy is based on our belief that is an actual extension of what we do, providing data, video, and voice services to both residential and commercial customers, and allows us to leverage significant expertise within our organization.

The integration of Baja is well underway, and planned synergies are being realized.

We are pleased overall with how Baja is performing in the first seven months of ownership.

We are seeing good growth and high-margin data subscribers, which more than offset expected video subscriber declines.

We are rolling out products and services that our existing wireline broadband customers enjoy today.

In 2013 we acquired Denver-based solutions provider, MSN Communications, and we are pleased with initial results.

At the end of the year, we integrated all of the hosted and managed service companies as OneNeck IT Solutions.

Now, the sales force can offer a full suite of end-to-end IT solutions and drive recurring revenue growth; and we will operate more efficiently, contributing to better financial performance.

Looking ahead to 2014, slide 21, there are a few common themes.

The first, which covers the wireline and cable segments, is -- own the best pipe in the market.

We want to have the most competitive data offerings.

In the wireline business, this supports our fiber strategy; and in cable, is one of our key acquisition criteria.

The other theme is around exceptional execution of our business strategies.

In particular, we want to see our HMS segment execute the vision we have for serving the IT outsourcing needs of our midmarket customers.

In the wireline, we will continue to deploy fiber where it is strategically and economically makes sense, and where our costs and demographic metrics support the business case.

For cable, we expect to grow customer penetration levels at Baja, while at the same time achieve synergies from offering existing wireline products and services.

We will continue to consolidate headends, which will make our video products and services more competitive, and we are connecting Baja to our multi-gig network to enable the delivery of more IP-based products and services to both residential and commercial customers.

We will continue to pursue cable acquisitions that meet our criteria of having favorable competitive environments, attractive market demographics, and the ability to grow broadband penetration.

For our HMS operations, now united under the OneNeck IT Solutions brand, we are bullish about both the market opportunity we are pursuing, as well as our ability to execute on that vision.

Our last two acquisitions have been solutions providers, and the belief that their sales forces, with the trusted advisor status with customers, will enable us to cross-sell our full suite of IT solutions to those organizations and other midmarket customers.

While the addition of two solutions providers will initially drive up the mix of low-margin equipment sales, let me remind you that our strategy is for them to also sell high-margin, co-location, cloud, and hosted and managed services, driving recurring revenues to be a growing part of the mix.

At TDS Telecom, we're very proud of the progress we have made building the growth engines that will enable us to be successful and improve returns over time.

And now, I'll turn this call over to Vicki Villacrez.

Okay.

Thanks, Dave.

Good morning, everyone.

Starting on slide 22, TDS Telecom had a very solid quarter, with, one, wireline expense reductions more than offsetting declines in wholesale and regulatory revenues.

Two, cable operations coming in on plan for our first full quarter of operations.

And three, HMS producing a 10% increase in recurring revenues on a same-store basis.

On a consolidated basis, revenues increased 23%, driven from both the Baja cable acquisition and the MSN acquisition, which was acquired on October 4. Adjusting for the impacts of these acquisitions, revenues were essentially flat year over year, as organic growth in our HMS business offset revenue declines in the wireline operations.

Adjusted income before income taxes, which is essentially operating cash flow for TDS Telecom, grew 18% year over year, or $10 million, to $66.1 million in the quarter, primarily driven by growth in the wireline, coupled with the contributions of the Baja acquisition.

Without the effects of acquisitions, the business grew its adjusted income before income taxes 7%, or $4.1 million.

Looking at wireline results on slide 23, strategic growth services, data, IPTV, and managedIP, just about offset the decline in legacy voice services and wholesale revenues.

Wholesale revenues declined 9%, primarily as the result of changes in the regulatory recovery, due to the reform order and lower wholesale rates, as well as continued declines in access lines and minutes of use.

However, due to cost control initiatives, SG&A declined 14% or $8.4 million from the same period last year.

As a result, operating cash flow margins improved 350 basis points, which drove a 9% increase in adjusted income before income taxes.

This is the third consecutive quarter in which the wireline reported growth in adjusted income before income taxes.

To put this effort into perspective, we have reduced ongoing employee costs by 9%.

This is very difficult work, and our entire organization should be proud of the way we've been able to identify opportunities to become more efficient.

On slide 24, ILEC residential broadband penetration continues to remain very high at 68% of total residential customers.

Residential broadband customers are increasingly choosing higher speeds in our ILEC, with 34% choosing speeds of 10 megabits or greater, driving increases in average revenue per connection.

With the upgrade to super high-speed data for IPTV, we have enabled approximately 25% of our ILEC residential service addresses for speeds of 25 megabits or greater, and are moving more customers to these higher speeds.

IPTV connections grew 75%, adding almost 6,000 subscribers compared to the prior period.

In our new fiber markets, we are offering up to 300-megabit data speeds.

In the table on the right, average revenue per residential connection increased 3%, primarily reflecting increases from the IPTV rollout and price increases for data services.

On the next page, our flagship commercial voice and data communications solution, managedIP, increased connections 35% year over year, resulting in commercial revenue growth of 2%.

As you look at the cable segment on slide 26, these results reflect the first quarter.

We are reporting three full months, as we purchased Baja in August 2013.

We are pleased with the results to date.

Revenues of $21.5 million are on plan.

We see a lot of opportunity to grow the residential and commercial penetration levels to exceed industry levels, particularly for broadband, and increase margins over time.

Expenses included one-time charges in the quarter related to severance and legal costs, and the addition of corporate assessments.

In the five months we owned Baja in 2013, we have seen 8% annualized growth in voice connections, and 7% growth in broadband connections, more than offsetting declines in the video connections.

Turning to the HMS segment on slide 27, we are pleased with the 10% growth in our recurring revenue streams, including co-location, cloud, application management, and managed hosting services.

The fourth quarter 2013 acquisition of MSN increased revenues by $30 million and expenses by $29 million.

Now, I'd like to walk you through our guidance for 2014, slide 28.

We are forecasting revenues of $1.05 billion to $1.1 billion, compared to $947 million in 2013.

From an acquisition standpoint, we will have additional contributions in cable from Baja, which was acquired on August 1; and in HMS from MSN, which was acquired on October 4.

From an organic standpoint, for wireline we anticipate declines in a legacy voice and wholesale revenues to more than offset expected consumer growth in IPTV and data products, as well as commercial growth in our managedIP.

We estimate wholesale revenues will decline $12 million year over year, compared to $14 million in 2013.

We expect organic cable revenue growth in the mid-single digits, and HMS recurring revenue growth in the low double digits.

Adjusted income before income taxes is forecasted to be within a range of $250 million to $280 million, compared to $249 million achieved in 2013.

We expect to hold wireline relatively flat, as we offset the declines in wholesale and regulatory revenues with additional expense reduction.

Contributions from a full year of cable operations and improving HMS results will provide the increase.

Capital expenditures are expected to be approximately $200 million in 2014, compared to $165 million in 2013.

Wireline CapEx is expected to remain constant, with approximately $35 million earmarked for additional fiber deployments and other success-based capital of approximately $40 million.

The cable capital budget includes funds to increase capacity related to household growth; and success-based capital and HMS CapEx has increased over last year, with funds to build a data center in Denver to support the MSN operations there and to expand our Eden Prairie, Minnesota, data center.

Finally, we expect depreciation and amortization to be approximately $225 million.

I'd like to close by reiterating how confident we are in the portfolio of companies we are operating today at TDS Telecom.

We believe our wireline business can generate consistent cash flow, and provide expertise and infrastructure to build our cable operations.

Our HMS segment is positioned to capitalize on the successful integration of the five companies we have acquired to generate strong revenue growth and increasing profitability.

Now, I'll turn the call back over to Jane.

Thanks, Vicki.

As we open up the call for questions, I just want to let you know that we also have Jay Ellison of US Cellular's EVP for Sales and Customer Service; and Mike Irizarry, our CTO, available for questions.

So, Latanya, we'd like to open up the lines now.

(Operator Instructions)

Phil Cusick, JPMorgan.

Hello.

That was quick.

I guess the first question is, can you talk about with the ARPU impacts from the credits should be in the first quarter?

Have we cleared that up in the fourth quarter, or is that going to continue for a while?

Hi, Phil.

Ken.

The credit itself went through in the fourth quarter, and it all went through in the fourth quarter.

There isn't any carryover effect from that, in the $43 million of points that we gave out.

Okay.

And then on the cable side, can we talk about -- actually, we met with a bunch of private and public cable guys recently, and there's just an overwhelming desire to buy assets from a lot of them.

So first, are you starting to see the market move, given the big announcements in the industry recently?

And second, how can we be confident that you are going to be disciplined on price, given your clear desire to grow in that space?

Sure.

Good morning.

This is Vicki.

Our strategy for the cable is that it is a natural extension of our core business and allows us to leverage our expertise.

We are continuously evaluating opportunities in the acquisition space for cable.

And as we do that, we look for key factors in the markets that we're looking at -- competitive footprint, good demographics and ability to grow data penetration.

And we build a long-term DCF model.

And based on that, we look to see what the opportunities are in order to earn a full return

Okay.

And then back to Ken.

Can you talk about the connect side?

You've talked a lot about the churn from the billing system issues.

But should we look at connects to be dragged in 1Q, as well, because of whether that's customer service issues, or just the overall customer impression on the market place?

Yes, great question, Phil.

In fact, in the fourth quarter, customer connections, or gross adds, were inhibited, quite frankly, because our stores were quite busy handling customer matters.

But in fact, in the first month of the year, we saw a really nice increase in postpaid gross adds year-over-year.

We aren't seeing that right now.

With all these moves everybody's made recently, I don't know how that plays out over the next 30 days.

But at least to date, I'm very happy with the pick-up in activations that we've seen in the first part of the year.

Okay.

Last one and I'll get out of the way.

Can the new billing system handle the EIP payments that people seem to be moving toward, or would you have to go back and amend that again to get that capability?

If you mean -- when you say EIP --

The overtime handset payments.

Yes.

We call it device financing.

That is one of the enhancements that's in the system that we are looking at rolling out in the first half.

So it's already -- it was already in the billing system plan, or you would have to add it?

The core capability is there.

You have to design exactly what you want to plan to do, but that capability is there.

Okay.

Good.

So you don't have to go and enhance the system again.

Okay.

Thanks, guys.

Michael Rollins, Citi Investment.

Hello.

Thanks for taking the questions.

Just a couple, if I could.

First, I was wondering if you could talk a little bit more about the CapEx levels for wireless, what's in it for this year?

Are there more opportunities that this network is built out and strengthened for LTE for CapEx to decline further?

And then, the second thing is, how do I think about the cost of the billing in EBITDA and where you might have had duplicative costs in 2013 that might go away in 2014?

And one final thing, if I could just throw one other question in here, what timing do you expect for wireless to get back to unlevered cash flow positive?

So if you were to take the wireless OEBITDA, less the CapEx levels, what's the timing for that?

Is it a year, or is it more, or less for that to get back to a positive number?

Thanks for taking all those questions.

Hi, Mike.

So let me start with the CapEx number.

CapEx was down in 2013 over 2012 by about 13%, and it's down again this year.

Part of that has been the work we've been doing with LTE.

This year, while we start the year with about 87% of our customers covered, that's only about two-thirds of our cell sites.

So, our plan right now is to push that out this year, probably covering about another 1,100 cell sites.

Which will get us somewhere -- 93% or so of our customers, maybe 88% of our cell sites.

So that's going from two-thirds to 88%.

That will give us a little bit of a job next year to finish the LTE rollouts.

We expect to get to all of our cell sites when we are done.

Just given the fact that we're going to get to 88% of our cell sites about this year.

Next year's LTE piece isn't as big, so there is a potential there.

At the same time, we don't have much capital in our plan this year around Voice over LTE.

It's something that the team has been doing a lot of testing on.

But there is enough questions about that, that we're going to let that go down the path a little bit.

I just mention that, because that could impact 2015, if VoLTE really gets some steam behind it.

But right now, there's enough bumps in the road on that one that we aren't going to go rushing there.

The billing --

Billing.

Yes.

So around billing, would you repeat your question?

So how much expense that was duplicative was in the 2013 numbers that might go away in 2014?

Okay.

So -- when you say expense -- part of it was, we talked in the past about just a pure $60 million of actual expenses to implement that system, right?

And that was -- a lot of that was third-party stuff that is done.

We don't need to do that, okay?

And on top of that, we wound up just giving away some credits that were about $43 million, right?

So there are two large, one-time items right there.

Yes.

And let me just add to that, Mike.

With the delays in billing that we saw, we had an increase in our accounts receivable balances.

And in providing an allowance for potential on collectibles there, we had a bit of a spike in bad debt expense in the quarter.

If you looked at it year-over-year and tried to estimate the effect of that larger balance, it's probably something in the range of about $30 million.

Then timing for unlevered free cash flow.

The only reason -- Mike, for me to talk about that, I have got to talk about -- I have already given you CapEx, right?

So I have got to, in fact, talk about AIBIT, and I'm just not in a position to give you guidance on that right now.

So I'm going to avoid answering your third question.

And maybe just one last thing -- on the rate plans in all the things that you are seeing.

Do you view the changes as more repackaging versus incremental competition, or how do you view the impact of these rate plans on your business model?

There's a lot of different changes going on.

Some of them were just repackaging and some nice marketing.

Others of them are getting to the point where they have more of a revenue impact.

As I have said in the past, being in the markets that we're in, what a couple of the carriers directly do does not impact us much, because we aren't there.

But when you get to the two big guys now to start responding, those are the ones that are in the markets that we're in, and those are the ones that we've got to make sure that when we are compared against them, we are still providing a good value to our customers.

Some of them have moved beyond repackaging, is the short answer.

Thanks so much for taking all those questions.

You're welcome, Mike.

Ric Prentiss, Raymond James.

Thanks.

Good morning guys.

Well, good afternoon.

I joined in progress, so hopefully I don't ask anything that was already asked.

Ken, I heard your comments talking about what it would take to improve margins.

You have to turn around the subs, and then you have to grow revenue on top of that, as well.

If you take those two parts, where are we at as far as getting to turning around subscribers?

How many more quarters of negative?

It sounded like one of the goals for 2014 was to grow the sub base, so it sounds like within 2014, you feel you'll grow.

Is it full calendar year you'll grow?

Again, Ric, what we talked about at the very beginning of the call was how, as a result of both some of the pricing moves and the fact that churn is currently still higher than we'd like it to be, we aren't talking about revenue guidance.

This is kind of related to that.

In fact, what we did say is that churn -- voluntary is starting to come back -- to go back down from the peak we saw in the fourth quarter.

Involuntary is actually growing right now, because during the quarter, with some of the billing questions that our customers had, we had slowed down some of our collection activity, and now we've got to work that through the pipeline.

So that's the one that's growing.

We're actually starting to see some improvement in voluntary.

And we are seeing some real nice growth year-over-year on gross adds.

If we continue that gross add growth and get churn back to where we expect it to be, we'll be meeting your objective and my objective, which is growing the customer base.

Okay.

And then on the ARPU side, I understand you're not giving financial guidance, just looking for inflection points to understand when we could see the turn coming.

I think I heard that the credits that were given on the billing systems in December, if they were excluded, ARPU actually would have been up 8% year-over-year?

Can you just do the math for us and make sure we are comparing that to the right number?

What would ARPU have been in 1Q -- or in 4Q 2013, if you hadn't given that?

Hang on a second, Ric.

Because I assume, is that across both categories -- postpaid and pre, or was it just post?

That was a postpaid number that we quoted.

Yes.

So more like $58, maybe?

Yes.

Hang on.

Let me just find that.

It was up about $4.50.

So $53.53 plus $4.50, right around $58.

Okay.

So that would have been quite nice.

And you've got that fully affected, to Phil's point, back in the fourth quarter.

The iPhones, I think I heard 257,000 sold in the quarter, but there was some supply constraints, and obviously, you got it late in the quarter?

Yes, sir.

Still demand -- still looking -- I think I also heard increasing iPhones sales.

So, would you expect you could do more sales than that 257,000 on a quarterly basis, given late in the quarter and constraints?

Or did you already supply the peak -- or the pent-up?

I'll say that right now the mix hasn't changed dramatically.

The fourth quarter, I'm thinking it was like one-third of our mix.

It's really -- it was kind of a nice place, 35%, maybe 40%.

And part of that was some of the customer upgrades -- customers that have been waiting, wanting for it.

That have been waiting for the phone.

It's at a level that I'm comfortable with.

It's not so high as to push out other very strong phones in the lineup, or so low as to make us worry about our commitment or anything else.

It's a nice place to be.

Okay.

And then the final one, because I think we are seeing the changes you need to get back to the positive adds and the positive revenue growth.

On the strategic side, you know me.

I have got to ask the tower question.

You mentioned in the press release, complete -- or in the presentation, complete demonetization of the nonstrategic towers.

Can you update us on what that means, completed?

And then, what about the core towers?

Hard to imagine that those are strategic.

Why not start leasing up those towers to the ultimate, maybe selling them someday down the line when you need the cash?

Okay.

Two different questions.

The first one -- as part of our transaction with Sprint, we're letting them get on some of the cell sites that are left in those markets.

And we are waiting for that to be completed, so they kind of give them first choice on those cell sites.

And then as soon as that's done, we're going to go out and test the market and see what the value is and make a decision.

That process has taken longer, as they are working through all their network changes.

As soon as that ball stops moving, we'll be able to go forward with that.

Quite frankly, I thought we had already been there, and we aren't there yet.

And so I'm hesitant to say it's going to be next month or next quarter, because it's just taken longer than we would like.

So that's one.

It's going to get done.

We aren't backing away from the strategic direction.

Were just trying to get the darn thing done.

On the other one, we continue to lease up our towers.

We've got people that are working on that.

I'm looking at Steve to see if he can tell me how much revenue we drove out of that last year.

But there's $30 million or $40 million of rental income.

It's $46 million.

It's $46 million.

They are all jumping at me.

My mind's back when it was $30 million.

We are up to $46 million on those, and we will continue to push that forward.

If there are other opportunities or other learnings that come out of doing the nonstrategic towers, we'll look at it again when we are done.

But right now our focus is, continue to lease the ones that are remaining in the portfolio and get the ones that are not part of that closed core market done and completed.

Sure.

Although you haven't taken it maybe to the extent that AT&T did, and T-Mobile did, and Shenandoah still does, which is create almost an internal tower company yet for the core towers, have you?

We've got a group of people that work on that full time.

Whether that's a separate legal entity, no.

But it's a group that's focused on it.

Okay.

So there is a focus on that?

Absolutely.

Yes.

Okay.

Thanks, Ken.

Latanya, we have time for one more question, please.

Stephen Mead, Anchor Capital Advisors.

Good morning.

Just a question on the depreciation level at US Cellular, on a quarter-over-quarter basis, what is -- how much was one time, or items in that line?

The quarter -- well, the absolute number that we say is incremental was about $45 million in the quarter.

Okay.

In terms of incremental, depreciation and amortization?

Yes.

That goes away at the end of -- it goes away at the end of January of this year.

And then have you reported on the equity and earnings on consolidated?

Have you reported how much was the deconsolidation of the properties that occurred in 2013?

Breakout here.

We don't break out New York 1 and 2 separately, do we Steve?

I mentioned that in the fourth quarter, there were $6 million of equity basis earnings related to New York 1 and 2.

Okay.

And then the other thing is, in terms of the billing system or whatever and the things that went wrong, do you have any recourse to the vendor?

That's not a question that I think I can -- there are -- we are working together with our vendors.

Let's put it that way.

Who is the vendor?

Amdocs.

Good job.

Thank you all for your time today.

Thank you.

This does conclude today's teleconference.

You may disconnect your lines at this time.

And have a great day.