美國無線通訊 (USM) 2015 Q2 法說會逐字稿

Greetings, and welcome to the TDS and US Cellular second-quarter conference call.

(Operator Instructions)

As reminder, this conference is being recorded. I would now like to turn the conference over to your host today, us Ms. Jane McCahon, Vice President of Corporate Relations for TDS. Please go ahead, ma'am.

Thank you, Latonya, and good morning, everyone, and thank you for joining us. I want to make you all aware of the presentation we prepared to accompany our comments this morning, which you can find on the investor relations sections of the TDS and US Cellular websites. With me today in offering prepared comments from US Cellular, Ken Meyers, President and Chief Executive Officer; Steve Campbell, Executive Vice President Finance and CFO; and from TDS Telecom, Vicki Villacrez, Vice President Finance and CFO. This call is being simultaneously webcast on the TDS and US Cellular investor relations websites. Please see those websites for slides referred to on this call, including other non-GAAP and operating cash flow adjusted EBITDA reconciliations.

The information set forth in the presentation and discussed during this call contains statements about expected future results and financial results that are forward-looking and subject to risks and uncertainties. Please review the Safe Harbor paragraph in our press releases and the extended version included in our SEC filings. Shortly after we released our earnings and before the call, TDS and US Cellular filed SEC Forms 8-K including today's press releases and their SEC Forms 10-Q.

TDS will be presenting at the Drexel Hamilton conference in New York on September 9, and we will be hosting analyst meetings at CTIA in Las Vegas on September 10. TDS will also be in Europe the week of September 28. Please keep in mind that we have an open door policy so that if you are ever in the Chicago area, not necessarily for Lollapalooza, but if you'd like to meet with members of management, the IR team will try to accommodate you, calendars permitting. Now, I'll turn the call over to Ken Meyers.

Good morning, and thanks for joining us today. I'm glad to have this opportunity to talk about our second-quarter results, a quarter that showed continued growth in our customer base, top line, and on the bottom line, whether you're talking about operating cash flow, adjusted EBITDA, or net income and earnings per share. The highlights for the quarter include continued customer growth primarily due to a significant improvement in postpaid churn. This quarter, postpaid churn was 1.34%, a level not seen in eight years. As a result of the churn improvement, we generated 17,000 net adds compared to losing 26,000 lines a year ago and effectively flat gross adds. As Steve will discuss, the adds are primarily data-centric devices like smartphones and tablets, which are taking advantage of our extensive LTE coverage.

Gross adds, while flat year over year, were lower than we would've liked driven by declines in consumer traffic in our stores and across electronic retailers generally. So driving the same level of gross adds on a year-over-year basis, despite declines in traffic, is a good achievement. We need more to continue to grow our customer base. This means maintaining the low churn levels like we are now seeing and increasing gross adds. This strategic imperative is a driver toward best value positioning. In addition to this position, we continue to run tablet promotions from time to time to stimulate store traffic and increase customer satisfaction by giving customers more ways to capture the value they receive from our wireless service.

This quarter, connected devices represented 32% of post-paid gross additions, or 36,000 net adds. Connected device penetration is now about 9% of our customer base. We have also seen success increasing high margin revenue streams through device protection plans, activation fees, and accessory sales. Equipment installment plan offerings remain popular with our customers and has helped lower subsidy costs on higher end devices. 42% of postpaid devices sold to customers in the current quarter were on equipment installment plans. Also, our shared data plans, which we call the Shared Connect, now account for 65% of our postpaid customers, up from 40% to 47% at year end, and with the strong tablet sales this quarter, average postpaid devices per account rose sequentially from 2.46 to 2.50 devices per account. We continue to see customers migrate to our Shared Connect plans.

The underlying trends of smartphone adoption and the addition of connected devices continue to drive strong growth in data consumption. These are important steps supporting our strategy to monetize growth in data usage. All of these activities, smartphone adoption, increased connected devices, Shared Connect adoption with larger data buckets, and EIP updates partially offset some of the pricing competition, led to a revenue growth of 2% over the last year. Steve will provide details on ARPU and average revenue per account trends.

On the network front, our 4G network is now carrying 83% of our data traffic. We are very pleased with the fast migration. Enabling this trend are two factors. On the handset side, 94% of our customers' smartphones are 4G LTE capable, and on the network side, 87% of our cell sites have LTE. These LTE devices will experience even greater coverage over the next two to four months as we begin to implement our first major 4G LTE roaming agreement and as we complete the final wave of LTE build-outs.

At the same time, we continue our voice over LTE trials and expect to report on our findings and plans later this year. Year-over-year growth in revenue, the elimination of expenses related to our billing system conversion, and tight spending controls in other areas all combined to generate $163 million of operating cash flow in the quarter, up over 70% over last year. Similarly, we posted significant growth in adjusted EBITDA and net income. This performance has led us to increase our guidance for 2015 operating cash flow, as Steve will detail in a couple of minutes.

To summarize, this quarter was a continuation of the turnaround that started to become visible in some customer metrics a year ago, and now is more visible in the financial results. I want to acknowledge the efforts of all of our associates that made this possible while still recognizing we have further to go to strengthen our position in the markets and to generate long-term return shareholders expect. Now, I'd like to turn the phone call over to Steve.

Thanks, Ken, and good morning, everyone. I'll begin with a few traditional comments on customer results shown on slide 6. Postpaid gross additions for the second quarter of 2015 were 191,000, essentially flat with the results a year ago. Postpaid churn was one of the real highlights for the quarter, 1.34%, down from 1.73% last year. I'll say more about postpaid churn in a minute. Due to both higher gross additions and improved churn, we achieved postpaid net additions of 17,000 for the quarter, a solid improvement from the net loss of 26,000 postpaid customers a year ago. The mix of our postpaid gross and net additions in the second quarter is shown in the chart at the bottom of the slide.

Smartphones represented 60% of gross additions, and connected devices represented 32%. These two categories of devices also drove the net additions. Prepaid subscriber results also were improved over a year ago. We had 8,000 net additions versus 4,000 net losses last year while churn improved to 5.2% from 6.5%. The next slide has a chart showing the trend in the postpaid churn rate over the past nine quarters. As you can see, the churn rate has steadily declined over the past several quarters from a high point of 2.29% in the first quarter of 2014 to 1.34% for this past quarter. To repeat Ken's comment earlier, the last time that we reported churn this low was in the first quarter of 2007, more than eight years ago. As stated earlier, our gross additions consist primarily of data-centric devices with smartphones being the largest component.

To shed further light on this activity, slide 8 shows the trends in smartphone sales and penetration. During the second quarter of 2015, we sold 437,000 smartphones, which represented 87% of total handsets sold. This drove smartphone penetration to 69% of our base of postpaid handset customers, up from 58% a year ago. So at the end of the second quarter, we still had 31% of our postpaid handset customers with basic phones. We continue to work aggressively with targeted offers to upgrade these customers to smartphones and thereby drive additional data usage revenues.

During the second quarter of 2015, we also sold 62,000 connected devices. Along with the higher penetration for smartphones and connected devices, we are also seeing more customers adopt our Shared Connect data plans. Penetration on these plans is now 65%, up from 47% at year end and 22% a year ago. Getting more customers on data-centric devices and shared data plans is critical to the strategy of monetizing the growth in data usage. The next slide illustrates just how much that data usage has continued to grow over the past six quarters. During the second quarter of 2015, data subscribers on our network used an average of almost 1.5 gigabits of data per month. That's an increase of 14% over the amount that they were using a year ago. And we're seeing that usage have a positive impact on revenue from customers.

Postpaid ARPU as reported was $53.62 for the second quarter of 2015, down $3.20 or 6% year over year. However, there are a lot of moving parts in ARPU, price competition, significant growth in data usage, discounts related to installment plans, just to name a few. And consequently, the reported number doesn't tell the whole story. When you look through it, the pricing and usage impacts have been largely offset. The equipment installment plans have resulted in a shift of some service plan revenue to equipment revenue. When we consider ARPU and the EIP goings together, we see that the year-over-year change is actually an increase of about 1%, not a decrease of 6%. There is a similar story for average revenue per account.

The as reported numbers show an increase of 1% year over year, but when we consider the EIP billings, the increase is actually about 8% year over year. Total operating revenues for the second quarter were $976 million, up $18 million or 2% from $958 million a year ago. The increase was driven primarily by higher equipment sales revenues reflecting the growth in equipment installment plan sales. Service revenues were $824 million, down $19 million or 2% from last year. There were two principal factors. Number one, lower retail service revenues. Although we had an increase in customers year over year, the impact of that growth was offset by the decrease in reported ARPU discussed earlier. Number two, inbound roaming revenues of $49 million decreased $9 million or 15% due to lower volume for voice traffic and lower rates for both voice and data traffic.

Our overall financial performance for the quarter was quite strong as shown on the next slide. Operating cash flow for the quarter was $163 million, up significantly from $94 million a year ago. That's an increase of $69 million or 73%. Several factors contributed to the improvements. First, as I just discussed in more detail, total operating revenues grew by $18 million or 2% year over year. Total cash expenses were $813 million, down $50 million or 6% year over year. System operations expenses increased by $9 million or 5% primarily due to outbound roaming expense. However, reductions in cost of equipment and SG&A expenses more than offset that increase. Cost of equipment sold fell $18 million or 7% driven by fewer upgrade transactions.

SG&A expenses fell by $41 million or 10%. Significant factors in that decrease were lower consulting costs and bad debts expense related to the billing system conversion last year, reductions in sales employee and commissions expenses, and lower roaming administration expenses. This chart also highlights our true operating performance for the quarter. As you can see at the bottom of the slide, our operating income, excluding the nonrecurring gains or losses in both periods, dramatically improved from a loss of $54 million last year to income of $12 million this year. Adjusted EBITDA shown next incorporates the earnings from our equity method partnerships and imputed interest income from EIP transactions. Adjusted EBITDA for the quarter was $207 million, up 61% from $129 million last year driven largely by the increase in operating cash flow. Earnings from unconsolidated entities were $36 million including $19 million from the LA partnership.

As disclosed in June and again in our Form 10-Q report for the second quarter, we've been informed by the general partner of the LA partnership that the general partner and the LA partnership have entered into a transaction with respect to a spectrum license in the LA partnership's market acquired by the general partner in FCC auction 97. We've also been informed by the general partner that cash distributions from the LA partnership will be suspended until the general partner has been paid for the spectrum license. Accordingly, we do not expect a cash distribution in 2015. By comparison, we received cash distributions of approximately $60 million in 2014. Cash distributions from the LA partnership do not affect the measurement of operating cash flow or adjusted EBITDA, nor will the reduction in the cash distribution for 2015 have a significant effect on US Cellular's liquidity or financial flexibility.

The strong results for the second quarter influenced our thinking about expected full-year 2015 performance and led to our determination that we should increase the guidance for the operating cash flow and adjusted EBITDA measures. The updated guidance is shown on slide 14 of the presentation. For total operating revenues, we have lowered the top end of the range by $100 million so that the range is now $4.0 billion to $4.1 billion. This reflects somewhat lower customer growth and EIP participation than originally expected. For operating cash flow, we're raising the range by $40 million at both ends to $440 million to $540 million.

This increase balances the positive performance in the first half with the fact that we still have an intensely competitive market with a lot of pricing uncertainty and our assumptions about the level of promotional activity that we expect to see, especially in the fourth quarter. The increase for operating cash flow carries through to the guidance for adjusted EBITDA along with the updated estimates for earnings from our equity method partnerships and interest income, both of which have come down a bit. So we're raising the range by $20 million at both ends, with the new guidance for adjusted EBITDA being $600 million to $700 million.

And finally, capital expenditures are still expected to be approximately $600 million. Note that the guidance does not incorporate any potential benefit that might result from the termination of our reward points program on September 1. At this time, there's still too much uncertainty related to the number of points redeemed and how they are used. As of June 30, the balance of deferred revenue related to the unredeemed points was $81 million. Finally, I'll make just a couple of brief comments about US Cellular's cash position. As of June 30, cash and equivalents totaled $362 million, up $151 million from the year-end level. In July, we borrowed the $225 million available under our term loan facility.

In addition to these funds on hand, we have about $282 million of unused borrowing capacity under our revolving credit agreement. We believe that these resources together with expected cash flows from operating activities will be sufficient to meet our day-to-day operating needs for the foreseeable future. Now, let me turn the call over to Vicki Villacrez to discuss TDS Telecom. Vicki?

Okay. Thank you, Steve, and good morning, everyone. TDS Telecom had a solid quarter as we continued to execute on our strategic priorities. For the wireline and cable segments, that means we continue to focus on owning the best price in the market and using that advantage to grow high-margin broadband services bundled with our video and voice products. For the HMS segment, we continue to execute the vision we have for profitably serving the ITL sourcing needs of midmarket customers. In our wireline business, we continued our focus on providing high-speed data services and related products, which has led to growth in IPTV connections.

Our IPTV product called TDS TV leverages our high speed network. TDS TV has been launched in 20 markets enabling 147,000 service addresses or roughly 20% of our total footprint. We expect to launch an additional seven markets over the remainder of 2015, and we are very pleased with the success of our IPTV deployments and will continue to make fiber investments to achieve our goal of approximately 25% of our ILEC service addresses. As a result of continually reviewing all of our operations, we agreed to sell three small ILEC territories in North Carolina. Our costs and demographic metrics in these markets did not support the capital investment required to be the most competitive data service provider in these markets going forward.

Also in the quarter, we've continued to move forward with the integration of our cable businesses. To further position us for growth and increase broadband penetration at Baja, we've increased the capacity on our broadband network and rolled out new products to improve the customer experience. We've also rebranded our Baja cable markets as TDS for both current and prospective customers. Our recent improvements in the network and product offerings in these markets will make a difference in their choice of providers. We believe a new brand was needed to attract them to this improved experience. In addition, TDS has plans to continue to expand in the overall cable business, and we have a brand we can take to any region of the country.

In the Bend Broadband market, performance has been strong and is exceeding our expectations. We continue to increase broadband connections and identify synergy opportunities giving us confidence in our overall cable strategy, which is based on our investment thesis around monetizing the growing demand for high-quality broadband services. In our hosted and managed services business, we continue to focus on driving recurring service revenue growth by improving our ability to sell across our entire portfolio of offerings.

Moving to the second-quarter results on slide 17, TDS Telecom had another good quarter. On a consolidated basis, we are seeing the success of our strategies. First, wireline IPTV and broadband services are replacing wholesale and commercial revenues. Second, cable operations nearly doubled in size with the integration of BendBroadband. And three, HMS made some good progress this quarter. Total revenue increased 11% due to both higher equipment sales and service revenues, which featured 3% growth in organic recurring hosting revenue. Adjusted EBITDA which is essentially operating cash flow for TDS Telecom, grew 7% year over year primarily driven by the contributions from cable acquisitions and HMS in the quarter.

Looking at wireline results on slide 18. Retail revenue, which is residential and commercial combined, was flat year over year. Residential revenues grew 1% as growth in broadband and IPTV more than offset the decline in our legacy voice services. The year-over-year decrease in ILEC residential voice connections has held at about 3% over the past four quarters. As expected, our commercial revenues decreased 4% as revenues from increases in managed IP connections did not completely offset decreases from legacy, voice, and broadband connections. Wholesale revenues decreased this quarter as a result of continuing decreases in regulatory recovery and lower inner carrier compensation rates and is in line with our expectations. On a combined basis, total wireline revenues declined 3% to $176 million. Cash expenses remained flat year over year due to our continuous cost control efforts. As a result, adjusted EBITDA decreased 6%.

Turning to slide 19, our strategic focus on broadband and our IPTV product is reflected in our residential customer metrics. In our ILEC market, the residential broadband customers continue to choose higher speeds, with 44% choosing speeds of 10 megabits or greater and now 13% choosing speeds of 25 megabits or greater. This is contributing to our higher residential ARPU. The uptake on IPTV is meeting our expectations at an average penetration rate of 24%. IPTV connections grew 53% adding 9,700 subscribers compared to the prior year. We are offering a variety of speeds, up to one gigabit service in our 20 IPTV markets. These actions are driving 98% of our customers to take all three services, which results in a very low churn rate.

As you can see in the table on the bottom of the slide, average revenue per residential connection increased 3% to $42.10. This increase was driven by price increases for broadband and video services, customers opting for faster broadband speeds, and customers selecting the higher tiered IPTV packages. Looking at the cable segment on slide 20, you can see the effects of acquisitions on the 2015 results. Total cable connections grew to 273,000 primarily due to BendBroadband. On a same-store basis, total residential connections grew 7% as growth in broadband and voice were partially offset by a decline in video connections. Commercial connections were flat on a same-store basis but we expect to grow this over time. Excluding BendBroadband and a one-time item, revenues grew 2% driven by an increase in average residential connection.

Cash expenses increased due to higher advertising, plant maintenance, and programming content cost. The increase in cable adjusted EBITDA was due to our BendBroadband acquisition. Turning to the HMS segment on slide 21, we had an encouraging quarter. HMS operating revenues increased $8 million or 11% year over year. We continue to focus on organic growth and recurring hosting service revenue, which was 3% for the quarter. In addition, equipment sales were up $6 million due to higher spending by existing customers. Cash expenses were also up 6% compared to the same period in the prior year, which reflects higher cost of goods sold offset by decreases in other operating expenses. HMS generated adjusted EBITDA of $4 million.

We have provided our 2015 guidance on slide 22, which is unchanged from the guidance we shared in May. Overall, we are pleased with the results of our second quarter and will continue to update you on our successful execution of our strategic priorities for the remainder of the year. I will now turn the call back over to Jane.

Thanks, Vicki. We also have Jay Ellison, Mike Irizarry, and Doug Shuma in the room with us for Q&A, so operator, we'd like to open up the call for questions at this point.

Thank you. At this time, we will conduct a question-and-answer session.

(Operator Instructions)

Rick Prentiss with Raymond James.

Great. Good morning, guys.

Hi, Rick.

Obviously, very impressive growth on the guidance, really driven by a lot of margin improvement. As you guys think about your path on margins, what else can be done to improve margins and where do you see it heading on the US Cellular side?

Rick, thanks for the question. Given where our margins are now, we've got more work to do. More work is both -- we've got to continue to grow revenue, first and foremost, just given our size. So that's the focus on continuing to grow our customer base and put more products and services out to that customer base. At the same time, we continue to work on our cost structure across the whole organization. Everybody in the organization is focused on that with the objective of continuing to grow margins going forward. We always have different quarters. When we get to the fourth quarter, the typical promotional activity, but if we look at it on a year-over-year basis, we have to continue to improve margins.

Okay, and one of the other key drivers of that can be the EIP. I think I heard in the prepared remarks, 42% of sales were EIP. It seems to be the industry is moving heavily that way. Where do you see that headed and how it could affect margins?

Two-part question. In terms of where it's headed, I don't know. And I say I don't know, and consumers are going to continue to pick what plans work best for them. We are at 42% and we aren't driving one over the other, except I think what you will see is perhaps a bifurcation with EIP being extremely attractive to customers as well as to companies on high-end phones and maybe not as effective on lower-cost handsets. In terms of the economics, it's a fascinating question because what we always get this one. What would it be if not for? Which at a certain level is unanswerable.

And also, it's a really company specific answer that's a function of how long the financing period is, what their accounting rules that they have to apply are in our case because we have an option for an upgrade after 12 months. We are only booking a portion of that revenue on the front end. So when we walk through it this quarter, it has a very minimal impact. It's arguable whether it's more than a couple of million dollars either way. So there is a lot of talk about this, but when you -- in our case, look at where we are today having been in it for a year, and percentage of customers and then amount of gross adds, and everything else, you put it all together, it has a real nominal effect on us right now.

Last question I got for you is maybe for Jay. From the standpoint of the iPhone, we have the iPhone messaging. I think you guys have started a new ad campaign, you've had the phone now for a year-and-a-half, going on two years. How is the messaging going as far as letting people know that you have it and to come back?

That's a great question. We started our first iPhone TV campaign several months ago, actually in the beginning of this quarter. And we are seeing both an improvement of awareness within our customer base of carrying the iPhone. And additionally, our non-customers through all of our work on consideration, we are seeing again I think driven very largely by our TV campaign in conjunction with Apple on our non-customers awareness of us having the iPhone. So we are just very happy with that campaign as well as all of our iHome work that we have been doing with Apple so we are seeing very good progress in that area.

Great, thanks guys.

Sergey Dluzhevskiy with Gabelli & Company.

Good morning, guys. First question is for Ken on the broadcasting spectrum auction. So, it looks like the FCC Chairman is driving the process so the auction can take place in the first quarter of next year. What are your expectations for that auction and do you believe there will be sufficient broadcaster participation given what you're hearing now?

So to the first part of the question, if I am hearing the same thing you're hearing, we've got a date out there at the end of March, and we are on a march right toward that March date. He has been pretty clear that he's going to try to get that done, and everything is lining up for that. Having said that, this is about the most complex auction one can imagine, with both the forward and reverse auction. A lot of work is being done, even at the industry level, trying to help broadcasters understand the opportunity in the hopes of freeing up enough spectrum because I think everybody is pretty aligned with the data growth that we have seen and that we continue to expect to see, the spectrum is going to be a very, very critical asset going forward.

We need more of it. And this is our next best chance at it. So I am hopeful that we are going to see a good auction from the standpoint of meaningful participation from the broadcasters so that we can continue to provide the services that consumers and businesses are just clamoring for.

Okay. Another question on the wireless side, on the mobile videos. Verizon is planning to launch mobile focused video game later this summer. And AT&T [was basically in a position of DirecTV] will likely be in the mobile video game as well. So those are two of your main wireless competitors. What are your thoughts on mobile video? What is your strategy, and do see opportunities to partner with (inaudible) providers or cable providers in your wireless markets to potentially combat some of those offerings from your competitors?

Great question, Sergey. Exactly how the, what I am going to call the branded video plays out is something I am watching very carefully. My initial response is that there are so many outlets consumers have today for many different sources of video that to try to do a branded one, you are really coming up with a more limited opportunity than they already have. With all of the different apps, whether it be a cable company's app, whether it be Netflix, whether it be Hulu, there are so many different ways that consumers can get in it today, that I don't know how will a narrowly defined branded one is going to work. It's one that we will watch very carefully.

Okay. One question on the TDS corporate side. There were no repurchases in the second quarter, and so essentially in the first half-- and I guess this question is for Doug. How should we think about the buyback trajectory for the balance of the year? And maybe you could comment on some of the reasons in general why you haven't had buybacks in the first half.

Yes, Sergey. Good morning. This is Doug. I think we've always said we have been pretty consistent saying that our capital allocation strategy reflects a long-term objective, and there are going to be points in time where there is a short-term swing for a lot of reasons. Having said that, I think we are tracking very closely to the 75%, 25% ratio of investments in the business versus distributions to shareholders. Some of the things that we think about, obviously, we have an upcoming spectrum auction. We still have our M&A objectives that we are pursuing. So right now, we want to maintain a lot of financial flexibility. As far as predicting what the back half of the year is, I am not going to touch that one because we just don't know what it's going to bring.

Okay. And I guess in terms of M&A objectives, this is also either for Doug or for Vicki, so in May I think we saw a new company get into the US cable consolidation game with Altice agreeing to acquire Suddenlink. I think it's over nine times EBITDA, and Charter will probably look for additional consolidation opportunities after TWC deal closing. How -- what are you seeing out there in terms of cable deal pipeline available for TDS Telecom and to what degree has it been affected, for example, by Altice Suddenlink deal recently?

I'll take that one, Sergey. Good morning. I think Altice jumping into the US market, I think it says a couple of things. One, obviously it's a competitive market for the cable industry, and it says it's an attractive one. And we are -- I certainly can't comment on any specific potential transactions until a definitive agreements are in place, but I can say that we still are bullish on the cable business, and we are actively pursuing additional cable acquisitions.

Okay, thank you.

Barry Sine with Drexel Hamilton.

Hi, good morning, folks. Question on the wireless business on US Cellular. I noticed on your website you are featuring a promotion where you will undercut the pricing of AT&T and Verizon. If I look at your published rates that are on your website, I don't see that much of a difference. Could you elaborate on what you are doing, how much are you undercutting and how much is that impacting ARPU in the quarter?

In the quarter, very, very little. It's a promotion that's just been launched, and our strategy is to sit right underneath Verizon. And what we've got in play here is we don't have the same reach that their national advertising has nor do we have the same name awareness so in order to get into the consideration set, you've got to offer the customer something to bring them into the store. And to date, it's had almost no impact on ARPU, and I don't expect it to have a significant impact going forward either.

Okay. And then wanted to touch on churn. You mentioned a very, very good result and we are seeing that across the industry. I guess that cuts both ways, though. On the one hand, it makes it harder for you to win back customers you have lost in recent years now that you have the network and the quality back up to snuff. On the other hand, I guess it makes maintaining your base easier, and perhaps you want to focus more on getting more revenue out of that base than we talked about adding video to the package and so on. What's your thoughts as churn becomes lower and lower in the industry on how you continue to grow revenue and EBITDA in this business?

Barry, giving me an easy one?

Yes.

That is clearly a challenge, and there are as you said, there are two sides to it. On the churn side, driving customer satisfaction and building loyalty and getting greater share of wallet is one of the strategic underpinnings of this Company and everybody else out there. Okay? And we've got marketing programs aimed at doing that. We've got programs that get executed in our stores every time a customer comes in, and through our customer contact centers. At the same time, just given where we sit today in terms of our size, we continue to grow more than just through that additional share of wallet.

So tablets and things like that are all things that expand the share of wallet that we need to add more wallets. That's behind the pricing position that we have got there. We're getting some traction. We're still seeing 20% to 25% of our gross adds in any quarter, our customers returning to us. Every day there is another story. The business that may have left us a couple of years ago because we didn't have a certain device in our lineup that are now off their contract and coming back to us. We need to continue to drive that migration also.

Okay, and my last question. You mentioned that you have now signed an LTE roaming agreement. Wonder if you could elaborate on that. When does that start? It sounds like you're not able to reveal who the customer is although there is only so many choices there.

At the right time we will. Where we're at right now is yes, we're done. We're in the implementation stages. That implementation takes work by the respective engineering organizations to connect these because of the way this data flows on the network as opposed to what voice does. And we expect to be launching that to our customer base within the next 60 to 90 days. And there will be other changes in connection with that. So when we get there, we will make a larger announcement. But it's just the first of what I expect to be multiple. We're working on others every day, too.

And should that positively impact your inbound roaming revenue?

I don't know that it's going to have much of an impact right away. These things take time for customers -- for companies to move their customers and everything else. I think it's going to have a more direct impact on our customers' experience going forward.

Thank you very much.

Simon Flannery with Morgan Stanley.

Great, thank you very much, good morning. Vicki, it was nice to see some of the wireline broadband momentum that was in stark contrast to what we saw out of the bells over the last couple of weeks, and certainly cable seemed to be having a very good quarter. So can you just talk about what's going on on the ground in the broadband wars and what you -- I think gave us some stats on the take rates so it looks like people are going up to higher speeds but how are you winning versus the cable companies? And then I'm not sure, maybe this is for Doug, but TDS's equity has outperformed US Cellular maybe 20% or so this year, so is there any consideration down the road of revisiting potentially collapsing the corporate structure and revisiting buying in the minority? Thank you.

Simon, I'll go first. On the wireline broadband side, yes, we saw some nice growth in the second quarter and it's driven for two parts. One is our investments that we're making in fiber in our most attractive markets. That is really driving nice growth, not only in the IPTV but in the broadband as well. And we are seeing over 95% of our customers that are taking IPTV, they're taking a triple play. So they're taking all three services. The second part of that equation is really the growth that's being driven by our broadband stimulus market. The investments that we have made and we finished 43 of our 44 markets, and so we are seeing really nice growth there. And as we look forward, we are working on our bonding strategy, which will also provide upgraded broadband speeds across our wireline.

Simon, I will take part two of that, good morning. As far as buying in the [sub were class] on the capital structure, there is absolutely nothing imminent. If there were, we would have had to disclose that to you. Having said that, we get that question a lot and it's something we do think about. And it's something we keep our eyes on and analyze periodically, so if there are any plans, we will let you know.

Great, thank you.

Arun Seshadri with Credit Suisse.

Hi, thanks for taking my questions. First, I just wanted to ask in terms of the LA partnership, I just wanted to figure out what timing would be for the resumption of the dividend?

I'm sorry, you're going to say that again. I didn't hear you.

Sorry. The LA partnership, just wanted to understand what the timing would be for the resumption of dividends.

So there is not a specific time. If I look at the historical distributions out of there, our estimate is end of 2016 is probably the most likely scenario.

Got it, thank you. And then as far as EBITDA margin improvement potential, how should we think about your margins expectations? Are you managing towards any specific targets on EBITDA margins on the wireless side?

I have got a lot of those very specific targets but when asked earlier today, I didn't give a number. I'm going to stay it's behind that wall with your question, too. We've got a job to do which is continue to improve our margins, and we've got a whole organization now aligned around that and we continue to march forward on a year-over-year basis. And that's a commitment, but I don't have a number for you.

Okay, great, I appreciate that. And finally as far as spectrum potential, spectrum purchases, any IP broadcast option, any color in terms of how you expect to fund that at this point?

I think that we've already talked about drawing down a term loan we put in place. And that was is done in preparation of the upcoming auction. We've got an unused line of credit on top of that that Steve had mentioned in his comments. Those are the most likely sources that we would be using.

Okay, so between the borrowings that you've already done on your term loan as well as your remaining availability, do you think that should be sufficient at this point?

At this point, yes sir.

Great, thank you.

At this time, I would like to turn the call back over to management for closing comments.

Great. Well, again thanks for joining us today, and if you have follow-up questions, please let us know. Have a great weekend.

This concludes today's teleconference. You may disconnect your lines at this time and have a great day.