美國無線通訊 (USM) 2015 Q4 法說會逐字稿

Greetings. Welcome to the Telephone and Data Systems fourth-quarter operating results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Jane McCahon, Vice President Corporate Relations of TDS. Thank you. You may now begin.

Thank you, Rob. Good morning, everyone. Thank you for joining us today.

I want to make you all aware of the presentation we've 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 and offering prepared comments, from TDS, Doug Shuma, Senior Vice President Finance; from US Cellular Ken Meyers, President and Chief Executive Officer, and Steve Campbell, Executive Vice President and Chief Financial Officer; and from TDS Telecom we have Dave Wittwer, President and Chief Executive Officer, and Vicki Villacrez, Vice President Finance and CFO.

This call is being simultaneous webcast on the TDS and US Cellular investor relations websites. Please see the websites for slides referred to on this call, including non-GAAP reconciliations. As a reminder, we provide guidance for both operating cash flow and adjusted EBITDA. For TDS Telecom these are basically the same number, brut for US Cellular the adjusted EBITDA measure includes significant attributions from partnerships which we wanted to continue to highlight for investors.

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 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 Form 8-K, including today's press releases. We plan to file our SEC Form 10-K on Wednesday, February 24.

Taking a quick look at upcoming conferences, on slide 3, we will be presenting at the Morgan Stanley conference on March 2, Deutsche Bank on March 7, and Raymond James on March 8. Please let us know if you would like additional information about any of these events. And do keep in mind that TDS has an open door policy, so if you're in the Chicago area and would like to meet members of management, the investor relations team will try to accommodate you, calendars permitting.

As has been our tradition on our year-end call, we would like to take a minute and recap our major accomplishments for the year just completed, as well as to set forth our strategic priorities and guidance for the coming year. To begin I would like to turn the call over to Doug Shuma to review TDS Corporate. Doug?

Thanks, Jane.

Turning to slide 4, we continue to execute on our strategic priorities and the review of our portfolio to improve performance. During 2015 we began to reap the benefits of the significant investments we've been making in our businesses over the past few years.

While Ken and Dave will cover these in more detail, network and IT investments at US Cellular are helping them to compete more effectively and efficiently. At TDS Telecom we are very pleased with our fiber investments and are beginning to see the contributions from our cable and HMS acquisitions. We have also continued to hone our portfolio, divesting ILEC properties that do not meet our return objectives, and selling non-strategic spectrum and towers.

As we think about how we allocate capital at the TDS level, we did not buy any cable assets in 2015, nor did we repurchase any TDS shares. We did, however, return value to our shareholders in the form of $61 million in dividends. And this morning we announced our 42nd consecutive annual dividend increase.

US Cellular repurchased $6 million of its shares. We did make some modest repurchases of TDS shares at the beginning of 2016 under our 10b5-1 plan. We've also been active raising money for US Cellular to fund the current and future spectrum purchases, the growth in EIP and for general corporate purposes.

US Cellular sold $300 million of 7.25% senior notes in November 2015 and drew on a $225 million bank term loan in July of 2015. Also, we intend to file a shelf registration shortly after we file our 10-Ks next week to replenish the USM debt shelf back to $500 million. This is primarily an administrative step. We do not have any current plans for additional borrowings for US Cellular. Lastly, as you are all aware, bonus depreciation was renewed late in the year, resulting in approximately $65 million of cash tax savings at US Cellular and approximately $95 million at consolidated TDS.

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

Good morning.

Before I start I want to address our ability to discuss the upcoming auction for 600 megahertz spectrum, known as Auction 1000. Short form applications for the forward-looking portion of the auction were due on February 10, and we did file an application.

As you know, this will be the most complicated spectrum auction ever conducted by the FCC. We will be watching intently as events unfold over the next several months, including the degree to which broadcasters participate, and firming up our plans accordingly.

As the anti-collusion rules are now in effect we are prohibited from speaking about it further. To be safe, we will not entertain any questions relating to any spectrum today.

Now let's talk about 2015. Steve will cover the financial results for both the quarter and the year in some detail following my comments. But I will start with some summary comments beginning with, I am extraordinarily proud of what the organization accomplished in 2015. Looking back at the guidance we issued a year ago, we met or exceeded all of our targets despite a hyper-competitive marketplace and a still weaker than expected economy, especially on the consumer front.

We significantly beat operating cash flow guidance, even if I adjust the original guidance for the impact of the rewards point change in the third quarter and lower than targeted customer growth for the year. Also, we completed our LTE rollout and other projects, while managing CapEx to levels below our guidance.

Looking at customer growth, I find it interesting that, despite substantial price cutting across the industry, the switcher pool continues to decline. As we've said in the past we will moderate our marketing spend based upon market conditions.

Partially offsetting what I consider a shortfall in gross adds is our year-over-year improvement in churn. In every quarter of 2015 churn was lower than the best quarter of 2014. Investing in our customer base is a central aspect of our strategy. I am pleased, but not yet satisfied, with our results. We constantly measure customer engagement and it is moving in the right direction, giving me reason for optimism about our ability to drive churn even lower in the future.

Our customer satisfaction is clearly a result of our network strategy. In 2015 we completed our deployment of 4G LTE. It now reaches 99% of our postpaid customers, providing an excellent network experience at our suburban and rural markets.

We also performed critical testing on voiceover LTE, or VoLTE, paving the way for our first commercial deployment early next year. Additionally, we signed multiple 4G LTE roaming agreements and are in the process of rolling this service out to our customers.

Our device portfolio remained very strong throughout the year, introducing new smartphone, tablets, and other connected devices that meet the needs of our customers. We introduced new plans and services, including expanded offerings of equipment installment plans, which have been well received by our customers and offered competitive pricing, delivering exceptional value to our customers.

At the same time, we continue to improve our cost structure and manage our investments to generate significantly improved financial results. The combined impact of these achievements are a set of business results for which I am thankful and proud -- thankful for all of the efforts of our team and proud to be part of the team.

On slide 7 you can see our priorities for 2016, which I will expand upon in the following sites. As many will note, they are not very different from the priorities set for 2015. And the reason is simple. These factors remain as the drivers to long-term returns.

Continuing to drive subscriber growth, slide 8, remains a top priority. This is a function of increasing gross adds and managing churn. Getting new customers in the door has been the single biggest challenge over the past year. Across the industry switching activity is down across the board.

We continue to work to refine our value proposition and build awareness of both our 4G coverage and the availability of Apple and other iconic devices. It's still very encouraging that 20% of our gross adds in the fourth quarter were previous customers coming back to us.

I'd like to talk about a few other initiatives that we believe will stimulate our gross add performance in 2016. First, we have intensified our focus on serving the small- and medium-sized business customers, including local and regional government entities. This is an underpenetrated market for us and, yet, it is one perfect for us given our local positioning. We've had some initial success during 2015 and we will continue this push in 2016.

We are also continuing to evolve our stores from a place to buy a phone and get services to a destination for mobile electronics. We are broadening our accessory lineup and using targeted promotions to drive even more traffic into our stores. Last year we had good results with both aspects of this retail strategy. Sales of accessories grew significantly in 2015, the margins from which help offset operating costs of the store, while targeted promotions have a success-based cost structure, with minimal cost if not successful.

Regardless of the depth of the switching pool in 2016, success for US Cellular, both this year and into the future, we measure in large part by our ability to control and improve churn. As mentioned, the improvement in 2015 is one of our top accomplishments, moving from 1.8% in 2014 to 1.4% in 2015. And we finished the year with fourth-quarter churn of 1.3% in what is usually a seasonally higher quarter.

And yet we need to do more. While we have seen recent customer engagement scores that support these results and are very encouraging, we are redoubling our efforts in 2016 in making customer engagement a Company-wide measurement for success to focus the whole organization on better meeting the needs of our customers at our mid-sized and rural markets.

Moving to slide 9, growing our customer base is not enough. We must also capture additional revenue growth. The improvement in our smart portfolio and our expanded 4G network have allowed us to steadily increase post-paid smartphone penetration, now at 74%.

While notable progress has been made, we still have an opportunity to drive additional revenue by converting more of our basic phone users to smartphone users. Our Shared Connect data plans are being well received by customers and allow us to capitalize on growing data consumption, so long as competitive pricing doesn't give away all of that future growth opportunity.

Other connected devices provide an opportunity to meet expanding customer needs while increasing data usage and revenue per account. At the same time, the more we meet these multiple customer needs, the more important our collective services become to customers, thereby lowering the risk of customer churn. We also see further opportunities to increase high-margin revenue streams, like device protection plans and accessory sales.

I think it is appropriate here to reiterate a cautionary note about the pricing environment. In 2015 we saw continued aggressing pricing movements, both direct and indirect, on devices, as well as services plans.

Our strategy is to position our offers just below our two major competitors. And not knowing the actions they plan for 2016, we can't begin to predict the moves we may need to make to protect our base and continue to attract new subscribers. However, to somewhat mitigate that risk, we continue to work on our cost structure.

Before talking about that, though, I want to speak briefly regarding some regulatory developments other than the spectrum auctions. We expect that the FCC will likely address the issue of the future of universal service funding for wireless carriers in 2016. Ted Carlson, our Chairman, recently testified before the telecommunications subcommittee of the Senate Commerce Committee. And I and other members of the team continue to meet with members of Congress about the importance of making ongoing funding available for continued mobile broadband deployment in unserved rural areas.

There is still a considerable way to go to ensure citizens in rural areas can receive the benefits of 4G technology. And the challenges that 5G technology will bring are even greater. I think this message was well received by a broad spectrum of senators, members of Congress and their staffs. And we look forward to working with the FCC in 2016 on this important issue.

As our guidance for 2016 implies, slide 10, we will continue to balance our need to build our customer base with the high cost of customer acquisition. We still have much to accomplish in terms of financial performance, but we made meaningful strides forward in 2015. We will continue to manage of subsidies and costs across the organization with a continuing focus on reducing unit costs.

With the completion of our 4G LTE network, combined with our attention to free cash flow generation, we expect a meaningful decline in CapEx for the year even though we plan to upgrade our first market for VoLTE in 2016 for that early 2017 launch. In closing, our entire organization should be proud of these results -- results of their efforts in 2015 -- which position us well for 2016.

And now I will turn the call over to Steve Campbell. Steve?

Good morning.

I'll begin with a few comments on customer results, shown on slide 11 of the presentation. As Ken said earlier, we grew our customer base during the fourth quarter. Postpaid gross additions for the fourth quarter of 2015 were 240,000 compared to 302,000 a year ago when switching activity was higher across the industry. This quarter's gross additions increased 20% sequentially and were the highest for the year.

Similar to gross additions, postpaid net additions of 68,000 were down year over year, but they increased significantly compared to net additions achieved in the preceding three quarters, which averaged about 14,000. The increase reflected the benefit of historically low churn, which was 1.3% for the quarter, down from 1.6% last year. I will say more about postpaid churn in a minute.

In the prepaid category we had 7,000 net additions versus 2,000 net losses last year. Gross additions were up about 15%, and churn improved to 5.4% this quarter versus 5.9% a year ago, the device mix of our postpaid gross and net additions in the fourth quarter, shown at the bottom of the chart. Similar to the past few quarters the postpaid additions were primarily data-centric devices like smartphones and connected devices, especially tablets. This quarter, smartphones represented 55% of total gross additions, connected devices represented 41% of postpaid gross additions and translated into 70,000 net additions.

The next slide has a chart showing the trend in our postpaid churn rate over the past nine quarters. Churn peaked at 2.29% in the first quarter of 2014 and has continued on a steady downward trend since that time, decreasing to 1.31% for the fourth quarter of 2015.

As I stated earlier our recent growth additions have consisted primarily of data-centric devices, with smartphones being the largest component. Slide 13 of the presentation shows the positive trends in smartphone sales and penetration.

During the fourth quarter we sold 515,000 smartphones, which represented 91% of total handsets sold, driving our smart phone penetration to 74% of the base of postpaid handset customers, up from 65% a year ago, and during the fourth quarter we also sold 95,000 connected devices.

At the end of the fourth quarter we still had 26% of our postpaid customers with feature phones. Obviously this represents an opportunity to upgrade these customers to smartphones and drive additional data usage revenues. And we plan to continue targeted offers to these customers in the current year.

As Ken said earlier, along with the higher penetration for smartphones and connected devices, we're also seeing more customers adopt our Shared Connect data plans. The penetration on these plans is now 78%, up from just 46% a year ago. Getting our customers on data-centric devices and shared data plans is critical to our 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 seven quarters in terms of total system usage and on a per subscriber basis. I should point out that the average usage per subscriber shown here reflects all data subscribers, including those with connected devices. For smartphone users only, the average usage increased 12%, totaling 1,845 megabytes this quarter versus 1,650 megabytes a year ago.

Now let's talk about revenues. Postpaid ARPU, as reported, was $51.46 for the fourth quarter, down 9% year over year. However, as we know, there are a lot of factors that affect ARPU, some positive, like significant growth in data usage that I just highlighted, and some negative like industry price competition.

Further, with the introduction of equipment installment plans, we've seen a shift between service plan revenue and equipment revenue. When we adjust for that shift by combining reported service plan revenue and equipment installment plan billings, average billings per user, which represents the total amount of being collected from customers every month, decreased by less than 1% year over year despite the growth in connected devices which have considerably lower revenue per device.

These impacts are better seen looking at postpaid average revenue per account. ARPA, as reported, was $131.96, down 3% year over year. But when we consider the equipment installment plan billings, average billings per user actually increased by about 5% year over year.

Total operating revenues for the fourth quarter were $987 million, down 2% from a year ago. Within that, total service revenues were $802 million, down $48 million, or 6% from last year, largely reflecting lower plan pricing due to industry competition, as well as the plan discounts that accompany equipment installment sales and activations of customer-owned equipment.

The other significant item contributing to the reduction in service revenues was roaming revenue, which declined by $7 million, or 13%, primarily due to lower rates for data usage. Note, however, that we also realized a benefit from lower rates on our outbound data roaming traffic. Total expense for outbound roaming increased by about 5% year over year, with the impact of lower rates more than offsetting a significant increase in data usage.

ETC revenues included in the other category on this slide were flat year over year at $23 million, as the FCC's phase down of universal service fund support remains suspended. Equipment sales revenues grew 16% to $185 million, driven by higher equipment installment plan sales.

Our overall financial performance for the quarter was quite strong, as Ken said, and a shown further on slide 17. Operating cash flow for the quarter was $137 million, nearly double $69 million a year ago. Lower costs and expenses in all major categories -- system operations, equipment and SG&A expenses -- contributed to the overall improvement. Total cash expenses of $850 million decreased by $89 million, or 10% year over year.

As you can see at the bottom of the slide, operating income, excluding the gains and losses in both periods, improved significantly year over year. Adjusted EBITDA, shown next, incorporates the earnings from our equity method partnerships, along with interest and dividend income, which consists mainly of imputed interest income from equipment installment plans. Adjusted EBITDA for the quarter was $178 million, up 80% from $99 million last year, driven largely by the increase in operating cash flow.

Earnings from unconsolidated entities were $30 million. This included $16 million from the Los Angeles partnership, up about $2 million year over year. As we expected and disclosed previously, we did not receive any cash distributions from the LA partnership in 2015. A summary of full-year results for some of our key financial measures is shown on slide 19. These are the as-reported figures which include the impact of the termination of the rewards program.

Total operating revenues were nearly $4 billion, up 3% from the prior year. Operating cash flow was $675 million, up 100%, or double last year's number. We also achieved dramatic improvement in operating income excluding the gains and losses in both periods, $69 million of income this year compared to a loss of $268 million last year. And adjusted EBITDA was $852 million, up 77% from $480 million a year ago.

Next I want to cover our guidance for 2016. As we've discussed already, 2015 actual results were significantly better than the updated guidance we provided this year for all metrics other than revenues. This stronger 2015 performance, our 2016 goal of growing our Business, and the prospects for continued price-based competition in the market, all combine to produce guidance that is similar to our strong performance in 2015, and actually lines up pretty well with most 2016 analyst estimates.

Our estimates for full-year 2016 are shown on slide 20 of the presentation. For comparison we're showing our 2015 results, both as reported and excluding the impact of the termination of the rewards program.

For total operating revenues we expect a range of approximately $3.9 billion to $4.1 billion. This reflects our expectation for modest customer growth, along with additional demand for equipment installment plans and data monetization, offset to some degree by the competitive pricing environment.

For operating cash flow we expect a range of $525 million to $650 million. And the estimate for operating cash flow flows through to the estimated range for adjusted EBITDA, which is $725 million to $850 million. These estimates reflect the higher operating revenues offset by higher expected customer acquisition costs. These in turn offset, to some degree, by continued cost control initiatives.

To the extent that we achieve a lower level of customer growth than currently estimated, we would expect results to be in the upper portion of these ranges. On the other hand, to the extent that we are successful in attracting a higher level of customer growth than currently estimated, or if the pricing environment worsens, we would expect results to be in the lower portion of the ranges.

Capital expenditures are expected to be about $500 million. This lower level of spending compared to 2015 reflects the completion of our 4G LTE deployment. It includes a spending to meet higher data demand and to prepare for the initial commercial launch of VoLTE.

Finally, I want to make just a couple of comments about US Cellular's cash position and liquidity. As of December 31, cash and equivalents totaled $715 million. In addition to these existing balances, US Cellular has $282 million of unused borrowing capacity under its revolving credit facility. We believe that these sources of cash, together with expected cash flows from operating and investing activities, provide sufficient resources to meet our normal operating needs and debt service requirements for the coming year.

However, these resources may not be adequate to fund all future expenditures that we could potentially elect to make, such as purchases of spectrum licenses and FCC auctions, or other acquisitions. It may be necessary from time to time to increase the size of the existing revolving credit facility, to issue new debt, or to obtain other forms of financing in order to fund these potential expenditures.

As of December 31 accounts receivable under equipment installment plans totaled $354 million. These receivables represent another potential source of financing, if it is needed.

And now I'll turn the call over to Dave Wittwer to discuss TDS Telecom. Dave?

Thanks, Steve. And good morning, everyone. I'm excited to share our 2015 accomplishments and then I'll outline our strategic priorities for 2016.

We continue to see cable as a natural extension of our wireline business. It's a common strategy for these businesses to own the best pipe in the market and use that advantage to grow high-margin broadband services, bundled with video and voice products. To achieve this objective we are continuing the integration of our cable and wireline businesses in order to take advantage of product, operational and infrastructure synergies.

On slide 22 in our wireline business we have continued our focus on providing the most competitive broadband service and related products, which has led to growth in both broadband and IPTV connections. Where economically feasible, fiber technology is being deployed to provide Internet speeds up to 1 gigabit per second. By the end of 2015 we have deployed fiber-to-the-home to 21% of ILEC service addresses.

Our IPTV product, called TDS TV, is an important offering that leverages our high-speed network, improves ARPU and reduces churn through attract bundling. In 2015 we continued rolling out IPTV to new markets. We have now launched TDS TV in 27 markets, enabling 167,000 service addresses, which is roughly 23% of our total footprint.

IPTV penetration increased due to strong sales in newly launched fiber markets, which utilized the Fiberville presale strategy, and the rollout of a bonded product in the IPTV copper market. We're very pleased with the success of our IPTV deployments, and we'll continue to make investments this year in both fiber and copper plants to drive further penetration of IPTV. One positive side effect of the increased triple play bundle is that it has moderated the losses of legacy voice lines.

In our cable business, our investment thesis is around monetizing the growing demand for high-quality broadband services. To execute on this strategy we have made investments to increase capacity on the broadband network, and we have rolled out new products to improve the customer experience.

We also rebranded our Baja cable markets as TDS. For both current and prospective customers, our recent improvements in the networks and product offerings in these markets will positively influence their choice of TDS.

For our hosted and managed service businesses we continue to execute the vision we have for profitably serving the IT outsourcing needs of mid-market customers. In 2015 we saw stronger revenue growth for the year, driven by equipment sales and professional services offerings. While our recurring service revenue growth is still below our expectations we remain focused on improving our sales performance.

Looking ahead to 2016, slide 23, our strategic parties remain unchanged. For the wireline and cable segments that means continuing to focus on owning the best pipe in the market. Depending primarily on market density, we want to have the most competitive broadband offerings. This supports our wireline fiber strategy, and in cable it is one of our key acquisition criteria. Also in 2016 we want our HMS segment to continue to execute the vision we have a profitably serving the IT outsourcing needs of mid-market customers.

In the wireline business we will continue to deploy fiber where it strategically and economically makes sense, and where costs and demographic metrics support the business case. In 2016 we are completing our plan to fiber build to reach approximately 25% of our ILEC service addresses, and will focus on driving further penetration of triple play bundles in our existing markets. The completion of the planned fiber deployments is driving the lower capital spending for the wireline segment in 2016.

To further strengthen our broadband offerings we will also deploy bonding technology to drive higher speeds in certain ILEC copper markets. Other elements of our strategy include our continued focus on providing exceptional customer service, being influential in regulatory reform issues, and managing our costs.

With regards to our regulatory efforts, TDS Telecom has been very involved, both independently and with national trade associations to communicate our positions on the need for additional funding to further broadband expansion in rural areas. We have been meeting with the FCC to express our support for the adoption of a voluntary model-based plan, as well as other reforms to the current rate of return mechanisms. While we are optimistic these changes will provide additional funding to help us improve our broadband delivery in certain markets, much can still change and we will keep you updated.

For cable we expect to continue growing customer penetration levels by offering existing wireline products and services in our cable markets and leveraging talent, knowledge, systems and network infrastructure across the two businesses. To support our strategy of growing broadband penetration, we will roll out speeds up to 300 megabits per second in our most competitive cable markets throughout the year.

Also an important cable initiative for us in 2016 is analog reclamation. This project will transition our analog cable markets to all-digital, and the main benefits are improved customer experience and reclaimed spectrum to provide higher broadband speeds.

In addition to focusing on our existing cable markets we also have been evaluating acquisition opportunities in the cable space. Although we did not make any cable acquisitions in 2015, we will continue to pursue cable acquisitions that have favorable competitive environments, attractive market demographics, and the ability to grow broadband penetration. We are disciplined buyers and we will only do a deal if we can make it work.

For our HMS operations in 2016 we're very focused on continuing to develop our hybrid cloud strategy of selling solutions tailored to customer needs to drive service revenue growth. On the cost side of our Business we're committed to further optimizing our operations to improve profitability. We're confident that we have identified a very attractive market opportunity and are committed to the mid-market strategy we're pursuing. At TDS Telecom we're very proud of the progress we have made building and integrating the growth businesses that will enable us to be successful and improve returns over time.

I will now turn this call over to Vicki Villacrez to talk about the fourth-quarter results.

Thank you, Dave, and good morning, everyone.

I'll begin by making a few comments on our consolidated results, starting on slide 24. First, on the wireline side, IPTV and broadband services are helping to replace the continuing declines in wholesale and commercial revenue.

Second, cable operations remained flat year over year. There are no acquisition impacts this quarter.

And, third, HMS had another quarter showing meaningful improvement. Total revenues increased 14% due to both higher equipment sales and service revenues. Adjusted EBITDA on a consolidated basis declined 8% year over year to $71 million. Consistent with past quarters, and as expected, wireline adjusted EBITDA decreased as wholesale and commercial revenues continued to decline, and benefits from cost reductions slowed. Contributions from HMS partially offset this decline.

Looking at wireline results on slide 25, residential revenues were impacted by ILEC divestitures and one-time adjustments, which caused a decline of 1%. Without those adjustments, residential revenues would have increased 4% as growth in broadband and IPTV more than offset the decline in legacy voice services. The year-over-year decrease in ILEC residential voice connections has held at about 3% over the past six quarters excluding divestitures.

Commercial revenues decreased 4% as declines from legacy voice and broadband connections were greater than the growth in managed IP connections. Wholesale revenues decreased this quarter, in line with our expectations.

On a combined basis, total wireline revenues declined 4% to $174 million. Wireline cash expenses increased 2% as increases in employee-related expenses and IPTV content costs outpaced the reduced cost of provisioning legacy services. As a result, adjusted EBITDA decreased $8 million or 13%.

Slide 26, looking at residential broadband customers, are continuing to choose higher speeds in our ILEC markets, with 47% choosing speeds of 10 megabits or greater, and 16% choosing speeds of 25 megabits or greater, driving increases in average revenue per connection to $43.15, excluding the impacts of this quarter's one-time item.

In the quarter we launched five additional IPTV markets, bringing our total up to 27. The uptick on IPTV is encouraging, at an average penetration rate of 26%. IPTV connections grew 47%, adding 11,000 subscribers compared to the prior year.

We're offering a variety of speeds, up to 1 gig service, in all IPTV markets. These actions are driving 98% of our IPTV customers to take all three services, which results in a low churn rates. On the right side of the slide you can see that we increased connections from our commercial voice and data communications solution managed IP, 5% year over year.

Turning to slide 27, our cable segment is comparable year over year, as there are no acquisition impacts. Total cable connections grew to 280,000. Total residential connections grew 6%, as growth in broadband and voice were partially offset by declines in video connections.

Total cable revenues were $43 million, which is flat year over year, driven by an increase in residential connections, offset by lower ARPU due to promotional offerings and the one-time adjustment. Without the adjustment, revenues would've increased 2%. Cash expenses were relatively flat, as higher programming content costs were offset by synergies and cost reductions in other areas. As a result, cable-adjusted EBITDA was essentially flat.

Now turning to the HMS segment on slide 28, we had another quarter of improvement. HMS operating revenues increased $8 million, or 14% year over year on strong equipment sales, as well as improved service growth of 6%, which includes 4% growth in our recurring service revenues, which are comprised of co-location, hosted, managed and cloud services.

Cash expenses were also up 10% compared to the same period in the prior year, which reflects higher cost of goods sold and cost of services needed to support the revenue growth. Due to efficiency improvements, other operating expenses were down. HMS generated adjusted EBITDA improvement of $2 million, which is beginning to show evidence of our efforts to integrate and streamline operations of our five acquisitions.

Since this is the year end let me briefly highlight our results for the full year on slide 29. We are pleased with 2015 performance overall. In total, we ended the year with revenues of $1.16 billion, up 6% from prior year, and in line with our expectations.

Adjusted EBITDA of $306 million was up $8 million or 3% from 2014, which was at the high end of our guidance range. Capital expenditures were $219 million, on top of guidance.

These results are a reference point for 2016 guidance, which I will walk you through on slide 30. We are forecasting revenues of $1.13 billion to $1.18 billion. For revenue, for wireline, we anticipate continued declines in legacy voice, commercial and wholesale revenues, to more than offset the expected consumer growth in IPTV and broadband. Losses from wholesale revenues are slowing, but are still meaningful at approximately $10 million.

We expect cable revenue growth in the mid single digits, and HMS recurring service revenue growth also in the mid single digits. Adjusted EBITDA is forecast to be within a range of $270 million to $310 million. Contributions from cable and HMS operations will help offset the pressures in the wireline segment.

Capital expenditures are expected to be approximately $180 million in 2016. Within the segments, wireline CapEx, which is about two-thirds of total spend, is expected to decrease as we complete our planned fiber spending in targeted wireline markets. The cable capital budget includes funds for success-based growth, including the one-time analog reclamation project and increased broadband speeds. HMS CapEx is lower than last year, reflecting completion of our planned data center buildouts, and is primarily success-based capital.

We've been investing heavily in all of our businesses to improve our competitive position in the markets we serve and to capitalize on the demand for higher speed broadband services and IT outsourcing needs. With our initial planned fiber deployments nearing their end, and our current data center builds complete, we now look to lower capital intensity, which will drive higher levels of free cash flow, an important metric to drive our future financial returns.

I'll now turn the call back to Jane.

Thanks, Vicki. Operator we are ready for questions.

(Operator Instructions)

Phil Cusick, JPMorgan.

Hello, it's Forrest Wilson in for Philip Cusick. I'm just curious about your plans for growing gross adds going forward. How do you plan to differentiate yourselves from the national carries and attract switchers going forward? Thanks.

As I think I said in the comments we're doing a lot of things. One is continuing to focus on those mid-size and smaller businesses in our markets, just because of where we are positioned and the services we can offer them. I think we can differentiate there. And that leaves to their employee base, number one.

Number two, continuing to evolve how we look at our stores as retail destination spots, driving more traffic into them with retailing type activities. Those are two of the larger efforts this year that are a little bit different from the approach we have taken so far. And given the progress that we've seen in churn, we're right on the cusp of where small changes in gross adds make meaningful difference in customer growth.

Okay, thanks. And if I could ask just one more, you mentioned a longer upgrade cycle. Can you elaborate on that? Do you think, is that a secular issue or is it just a question of iPhone timing? Thanks.

From what we have seen so far -- and I am the first to tell you we are younger in the curve than others -- we're starting to see it in other places more than we are seeing it here. But we have a large part of our customer base is simply holding on to their phone longer, even if they are out of what I would call the contract area.

Other things, just given the pure price of the phone, you are seeing terms for the equipment installment plan elongating in order to help offset or manage that monthly cost of the phone. Now, some of these phones now are crossing the $700 barrier. That is a pretty substantial item for a family when you start adding two and three and four lines to them. So, I am not surprised by it but I'm not yet in a position to say where does it bottom out.

Thanks again.

(Operator Instructions)

Ric Prentiss, Raymond James.

Hello, good morning, guys. I want to ask one question but multi-parts, as always. First, to clear up some confusion that seemed to come out in the marketplace today, your fourth quarter EBITDA, the $178 million, we were looking for $103 million. I think consensus was about $105 million. And on 2016 guidance, your $725 million to $850 million suggests a midpoint around $788 million and we were looking for $758 million. And consensus I think is $750 million.

So, the first question is just, can you confirm that those are decent consensus numbers for what 4Q and 2016 guidance are compared to what you just gave?

Yes Ric, those are exactly our numbers.

Okay. And the second part of the question is -- and I think, Ken, you alluded to it -- that the guidance does assume that there is a focus on growing the business. And you talked about the gross adds on the last question. Can you get us a little color on -- when you said the upper portion if there's slower growth, the lower portion of there's better growth?

Last year, when you think about your guidance, you continually updated the guidance throughout the year pretty meaningfully. Initial EBITDA, $580 million to $630 million to $650 million to $750 million. And you almost hit $800 million when you adjust out the rewards program. Just trying to gauge how much should we think you've baked into the range, which is fairly tight, for what is a surprise on the upside to a surprise on the downside for subscriber adds?

Wow -- you said there multiple parts, you didn't tell me they would be complicated, too. Clearly this year growth was lower than we had targeted. We took that into account in looking at our guidance for this year. There isn't anything baked into our plans that says suddenly we go back four years in terms of growth and we are popping out 1.1 million, 1.2 million gross adds. That is not what it is based on at all.

But there is a range that is particularly pronounced when you have these success-based promotions, because if you don't get the gross add, that's a whole (inaudible) isn't incurred and flows right to the bottom line. We've tried to be real reasonable in our targets for growth or assumptions of what we will be able to drive for the year. I think the word Steve used in his comments was we were looking for modest growth.

Our target is to grow so all our numbers are based upon us achieving that growth. And if we do we will spend some more dollars in marketing that are in plans that are designed to the profitable. We're not trying to just add numbers to add numbers. But if the switcher pool stays shallow, as it has recently been, then you aren't going to see those incremental marketing spends and they're going to fall right to the bottom line.

That makes sense. And then the third part of the question on guidance, I apologize, but there's a lot of moving pieces. The EIP plans are an important part of the market these days. Can you update us as far as what you saw as far as take rates for EIP in the fourth quarter, what you're expecting that should look like in 2016 guidance, because it does move money around from service to equipment and the accounting and the interest income.

Yes. A couple of things there, too. Last year EIP was actually at a smaller take rate than we had seen in other carriers throughout the year. And part of that is our own marketing strategy, which is we want to have the right plans and the products and services that meet the needs of our customers. So, therefore, we will continue with both subsidized and EIP plans, with each set of plans designed to meet the needs of those customer groups and to be profitable for us. It is not a matter of us trying to push one plan versus the other.

Having said that, last year Q4 up 45% of our activations were on EIP. That was higher than prior quarters and reflected the first time that our agent channel had full access to EIP plans. We saw a little bit of improvement in the holiday, in that product line -- a little higher take rate, I should say, it's not an improvement -- but a higher take rate with that plan.

Now, starting off this year, interestingly we're seeing a significant step up in the take rate of EIP. I don't have enough insight into why. There isn't anything that is dramatically different about the construct of our plans or anything else.

And the first time through it I don't know if that is a seasonal impact. In the past we always talked about a prepaid market in the first couple of months of the year as people got their income tax returns. I don't know if it is related to that, but right now we are running significantly higher than the 45% we saw in the fourth quarter of last year.

Okay. That helps a lot. And I appreciate, again, clearing up the confusion on what your numbers were versus consensus. Thanks.

Sergey Dluzhevskiy with Gabelli.

Good morning. A couple of questions. The first one, I think for Doug. You didn't repurchase any shares in the fourth quarter but I think you mentioned that you did purchase some in the beginning of this year. Could you disclose in shares or in dollars what was the amount of the repurchase?

It's modest, Sergey. We're not out in the market buying hundreds of millions of dollars of shares. I mention that just because we obviously were out of the market entirely last year and we did make some share repurchases this year.

Okay. Is it going to be disclosed in the 10-K or do we just need to wait until --?

2016 items, so you'll see it.

Okay. In terms of, the second question is for Ken and Steve. You guys talked, obviously, about different puts and takes in respect to EBITDA for 2016. And I think your longer-term target is to get EBITDA margins somewhere in the 20%, 25% range. Give the competitive environment, do we see a path to these margins? If the environment doesn't change what else could you guys do to improve margins over time?

Sergey, given the pricing environment that we're sitting in right now -- to talk about a path beyond what we have talked about in 2016, is purely speculative, more speculative that even I want to stick my neck out on. Right now we continue to focus on really improving all aspects of the business performance, whether it be our investment levels in the network and really getting much sharper in there, to our cost structure, to improving the effectiveness of our stars. The target still is mid 20s in terms of making some of the returns work out the way I think they need to work out. But right now the focus is just the competitive positioning in 2016.

Okay. And my last question is for Dave and Vicki in regards to regulatory dynamics on the ILEC front, particularly as they relate to rate of return carriers. You briefly mentioned this in your prepared comments, but I was just wondering what your general thoughts are on A-CAM. What are your basic expectations as far as that mechanism, and also the timing of this process?

Sure, Sergey, this is Vicki. Overall, as I gave guidance for the year, in our regulatory impact we do expect wholesale and regulatory declines of approximately $8 million to $10 million in 2016.

With respect to the CAF-2 reform and the impact on the rate of return carriers, we are optimistic on what we believe is the current framework for the FCC's reform efforts. Our teams have been involved, both independently and with the national trade associations, and we've met with five Commissioner offices at the FCC advocating our position, which is to ensure that we will receive, or there will be additional funding, to help us improve our broadband delivery in the most rural areas in our footprint.

I can't say what that change is going to look like yet until we see the details of the order. But our guidance does not include any impacts that could result from the FCC's decision. It may require some up-front level of capital spending in 2016. We will let you know more.

What are your expectations on the timing of the order?

We expect that very soon.

Okay, thank you.

Barry Sine, Drexel Hamilton.

Good morning, folks. And I might sneak in more than one, if you don't mind. The first question, Sunday Samsung is coming out with a new S7, reportedly. I know historically you have had a heavier penetration of Samsung devices. Could you update us? Is that still the case? Have iPhones caught up? And is there anything in particular you would be looking at with this refresh cycle that might impact near-term results?

We continue to see nice growth in the Apple product. It's running just under 40% of our handsets. But Samsung is our number one. It has been our number one. I intend to be there Sunday when they roll out that new product, and I'm looking forward with great excitement to see what they are doing next.

And any impact that may have on -- what typical impact does that have, when Samsung comes up with a new device, in your quarterly results?

They are on a cycle where about the first quarter of each year is when that gets launched, the end of the first quarter, beginning of the second quarter. Their timing is the same this year so I'm not expecting to see a significant year-over-year change because of that launch. I'm hopeful but not expecting it.

The next question -- in terms of wireless competition, you had a number of comments on that. Can you give any sense of what you are seeing in terms of poured in, poured out? You talked about winning back some customers. Who are you winning customers from and what part of your service offering is attracting them? Is it price? Is it network quality?

The poured-in studies are always amazing. What you will see is that we win from and lose to whoever our biggest largest market share competitor is in our markets. We do not see substantial changes where market share is being taken suddenly by a new entrant, or anything like that.

When we look at the reasons, the reasons that we win customers turn out to be, number one, network quality, and the reason that we lose them, number one, is network quality. Which makes you wonder the value of the research that you spend so much time and energy getting. But it is network quality and price, one and two, typically, on the coming in and going out.

Okay. My last question, more on the TDS Telecom side, around M&A. I just want to get an update in terms of your sense of what you would be looking for doing in 2016. It sounds like you are still interested in cable. HMS, with only $1 million in EBITDA in the quarter, it sounds like you'd still be on hold waiting for results to perk up a little bit there. And telco. Are there any live prospects to divest additional small ILEC properties over the near term?

We typically don't comment on any pending transactions. We're obviously focused on finding ways to grow the business. As we said, we did not have a cable acquisition in 2015, but we continue to be opportunistic.

We're looking for all kinds of different options for ways to grow the business including cable acquisitions. Things that could help complement our hosted and managed service business are certainly options. I think you're going to see, as we made some very small divestitures of our ILEC market, those, too, could be opportunistic but there is not a wholesale plan in place.

Okay. Thank you very much.

Thank you, folks, for your time this morning, and we will be in touch doing follow-up calls. Let me know if you have further questions. Thanks so much.

This concludes today's teleconference. Thank you for your participation. You may now disconnect your lines at this time.