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TDS Telecom March millions

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TDS Telecom March millions Powered By Docstoc
					      SANDRA L. HELTON
Executive Vice President and CFO, TDS


       Robert W. Baird & Co.
   2005 Growth Stock Conference
           May 11, 2005
                                 Safe Harbor
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995:
Information discussed in today’s presentation, except historical and factual information, may
represent forward-looking statements. This includes all statements about the company’s plans,
beliefs, estimates and expectations. These statements are based on current estimates and
projections, which involve certain risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Important factors that may affect these
forward-looking statements include, but are not limited to: changes in circumstances or events
that may affect the ability of USM to launch the operations of the licensed areas involved in the
AT&T Wireless transaction completed in August 2003; the ability of U.S. Cellular to successfully
manage and grow the operations of the Chicago MTA and newly launched markets; changes in
the overall economy; changes in competition in the markets in which U.S. Cellular and TDS
Telecom operate; changes due to industry consolidation; advances in telecommunications
technology, including Voice over Internet Protocol; the impact of local number portability;
changes to access and pricing of unbundled network elements; changes in the
telecommunications regulatory environment; changes in the value of investments, including
variable prepaid forward contracts; an adverse change in the ratings afforded TDS and U.S.
Cellular debt securities by nationally accredited ratings organizations; pending and future
litigation; acquisitions/divestitures of properties and/or licenses; and changes in customer
growth rates, average monthly service revenue per unit, churn rates, roaming rates and the mix
of products and services offered in U.S. Cellular and TDS Telecom markets. Investors are
encouraged to consider these and other risks and uncertainties that are discussed in documents
filed by TDS and U.S. Cellular with the Securities and Exchange Commission.                 2
                    TDS
• Diversified telecommunication company
  with 6.3 million customers in 36 states
  • U.S. Cellular (82% owned) – wireless
  • TDS Telecom (100% owned) – wireline
       • ILEC and CLEC operations

• Fortune 500 company
• Strong balance sheet
• Investment grade
                                            3
                Five-Year Track Record
                       Year Ended December 31
           $4,000
           $3,500
           $3,000
           $2,500
           $2,000
$ in Millions




           $1,500
           $1,000
            $500
               $-
                    2000       2001      2002     2003     2004

                    Operating Revenues    Operating Cash Flow


                           12/31/04 - Five Year CAGR
                           Revenues       11.9%
                           EBITDA         6.6%
                                                                  4
                 U.S. Cellular
                     as of 3/31/05
• 7th largest wireless service provider; 2nd largest
  regional carrier
• Total population - 45 million
• 5.1 million customers
• 11.5% market penetration
• Focused on exceptional customer experience
• Admirably low churn rate
• Pervasive distribution… 1,800 points of presence
• Extensive network ... 4900 cell sites
• Well positioned in our markets                   5
6
          Postpay Churn < 2%
Seven-year track record… and still strong
2.0%    1.9%    1.9%
                                       1.8%
1.9%
                       1.8%
                               1.7%
1.8%
1.7%
1.6%                                           1.5%
                                                      1.5%
1.5%
1.4%
1.3%
1.2%
1.1%
1.0%
       1998    1999    2000   2001    2002    2003    2004

                                                             7
Consumers Union Analysis of FCC
     Data - March 28, 2005
     (complaints per million customers for CY2004)

         U.S. Cellular                   39
         Verizon Wireless                76
         Alltel                         76
         Nextel                        103
         Sprint PCS                    168
         T-Mobile                      185
         Cellular One                  264
         AT&T / Cingular               289

                                                     8
          U.S. Cellular Strategy
• Positioned as a regional carrier

• Differentiate by providing an exceptional
 customer experience:
      Network quality
      Broad distribution
      Dedicated people focused on the customer

• Utilize CDMA 1X technology in all markets

• Strategically strengthen regional footprint
                                                9
  Q1 2005 Financial Highlights
        U.S. Cellular – March 31, 2005
                     1Q 05       1Q 05
Service revenues     $ 668.8 M   $619.4 M   + 8%
Operating income     $ 36.2 M    $28.3 M    + 28%
EBITDA               $ 163.5 M   $142.0 M   + 15%
Customer units       5.1M        4.5M       + 13%


Churn - postpay         1.5%      1.3%
Retail ARPU           $44.28     $46.16
MOU                    584       491
Cell sites            4899       4122
                                             10
    Strengthening the Footprint
• Acquired Chicago market – 8/02
• Exchanged wireless properties with AT&T
  Wireless (now Cingular) – 8/03
• Sold:
  • Daytona Beach to MetroPCS – 12/04
  • Two small markets and investment interests
    to Alltel – 12/04
  • South Texas markets to AT&T Wireless – 2/04
• Acquired Missouri 14 market – 4/05
                                             11
AWE (Cingular) Property Exchange
Improved competitive position in Midwest and Northeast markets

 • Excellent fit with USM’s strategy:
     • Strengthens regional footprint through
       acquisitions or trades
     • Builds on strengths and exit other markets

 • Built out and launched 3 markets in 2004:
     • Oklahoma City; Lincoln, Neb. and
       Portland, Maine
 • Expect to launch St. Louis market in 3Q ‘05
                                                        12
                  Divestitures
Exited markets not strategic to company’s long-term success
• South Texas to AWE - Feb. 2004; $97 M
   • 25 MHz licenses; 1.3 M pops, 150 cell sites and
     76,000 customers
   • High prepaid mix and heavy roaming market
• Alltel sale - Dec. 2004; $81 M
   • Two 25 MHz operating markets in FL and OH
   • Seven small investment interests in Ohio, N.C.,
     Miss., Wis. – 268,000 pops
• Daytona Beach to MetroPCS - Dec. ’04; $8.5 M
   • 20 MHz Block C license
                                                       13
•




    14
                Auction 58
• Participated through partner Carroll Wireless
• Carroll Wireless highest bidder for 17
  licenses with a population of 14.4 million.
  Licenses are in 11 states and include:
  • Oklahoma City
  • Portland, Maine
  • Indianapolis
• All licenses complement U.S. Cellular’s
  existing footprint. Total bid $130M net.
                                                15
16
           CDMA 1X Initiative
• Improved voice capacity and coverage;
  cost-effective use of wireless spectrum
   • Enables offering of high-speed data products

• Completed the 3-year project in 2004
  • Ahead of schedule, below planned cost

• Total cost to build CDMA ... ≈ $300 million


                                                17
            Data – easyedgeSM
• easyedgeSM Phone Download Applications (BREWTM)
  • Applications: games, news, traffic, calendar
  • Launched nWebSM Nov. 2004 – enables Internet access
  • Launched AOL® Instant MessengerTM service March 2005

• easyedgeSM Picture Messaging (MMS)
  • Take, send or receive photos

• easyedgeSM Wireless Modem Service
  • Wireless Internet access for laptops; e-mail; calendar
  • Available in select areas to business customers      18
   Service Enhancements in 2005
• easyedgeSM
  • Enabling easyedge customers to send images to
    non-U.S. Cellular customers

• “Push-to-talk service
  • Planning to launch in 2005 for business and retail
    customers




                                                         19
             EVDO Trials
• Currently conducting technical trials
• As with any new technology, U.S.
  Cellular wants to ensure that:
  • Technology is supported by value-added
    applications customers will want and value
  • Ready to fully support the new technology
    and any new services or applications it
    supports
• Plan to launch service trials in 2006
                                                 20
       USM 2005 Outlook
         (Revised March 18, 2005)

• Service revenues … +/- $2.9 B
• Net additions … 475,000 to 525,000
• Dep, amort & accretion … $530 M
• Operating Income … $180 to $220 M
• CAPX … $570 to $610 M


                                    21
 USM: Excellent Prospects
• Proven strategy
• Financially strong
• Extensive network and distribution
• Terrific people; dynamic organization
• Positive momentum


                                          22
23
     TDS Telecom - ILEC
• 7th largest independent U.S. telco
• Rural company status
• 734,000 access line equivalents in 28 states
• 98,200 Internet (dial-up) accounts
• 49,300 DSL – mostly residential
• 302,400 long-distance lines
• Vertical services
                                         24
      TDS Telecom - CLEC
• Principally a facilities-based company in
  five states …89% on-switch

• 438,000 access line equivalents

• Targeted selling with emphasis on small
  and medium businesses

• Deep penetration in chosen markets

• Provisions principally with SBC
                                              25
   Q1 2005 Financial Highlights
         TDS Telecom – March 31, 2005
                          (millions)
ILEC                     1Q 05         1Q 05
  Revenues               $161.8        $159.1   + 1.7%
  Operating Income        40.6         48.6     - 16%
CLEC
 Revenues                $59.2         $ 54.7    + 8%
 Operating (loss)        (1.4)          (3.8)      NM

Access Line Equivalents (thousands)
 ILEC                   734            722      + 1.6%
 CLEC                   438            379      + 15.6%
                                                     26
 TDS Telecom’s Overall Strategy
Repositioning as a Broadband Communications Company


 • Provide outstanding customer service

 • Be the preferred broadband provider
   in its markets
 • Protect and grow current markets

 • Develop and market new products
   and services, with strong focus on
   data and triple-play
                                                27
                           Our Competitive Advantage:
                             Customer Satisfaction
                                   Higher
% Likely to Switch Local Carrier

                                                           Third-Party Validation
                                   40%


                                                               Sprint
                                   30%      CenturyTel
                                                                ALLTEL


                                                                 Frontier    MCI
                                   20%                     Qwest                           TDS Telecom
                                                Comcast
                                                                               BellSouth
                                                           McLeodUSA        Verizon        AT&T
                                                                                                              Talk America
                                                                  SBC
                                   10%                                                                    TDS Metrocom

                                                                                                  Cin. Bell       Cox

                                    0%
                                      600                650                700               750                       800


                                   Lower         Overall Satisfaction Index Score                                       Higher
                                                                                                                                 28
Fortifying and Developing Existing
              Markets
• Trialing new technologies …
       • Fiber to the Premise (FTTP)
       • Voice Over IP (VOIP)
       • Wireless data

• … toward offering robust triple-play and
  other new products and services




                                             29
           DSL Facts - ILEC
• 81 markets, 49,300 customers, fast growth
  • DSL lines – up 81% YOY 2005 to 2004
  • Market share exceeded cable in late 2004

• Primarily consumer based
• Product bundles:
  • DISH satellite / DSL; long distance / DSL, etc.

• DSL modems Wi-Fi enabled
                                                 30
  Long Distance and Bundling
• Long distance another growth driver for
  the ILEC
• ILEC working for greater penetration
  through cross-selling and big-minute plans
  • LD market penetration up to 51% in 1Q05
• Product bundles – provides customers
  ability to customize their services
  • “Total Talk”

                                              31
      2005 Outlook - TDS Telecom
              (Effective February 9, 2005)
• ILEC
  •    Operating revenues … $655 to $665 M
  •    Dep, amort & accretion … $135 M
  •    Operating income … $170 to $180 M
  •    CAPX … $120 to $130 M

• CLEC
  •    Operating revenues … $240 to $250 M
  •    Dep, amort & accretion … $30 M
  •    Operating income (loss) … $(15) to $(10) M
  •    CAPX … $30 to $35 M
                                              32
     Special Common Shares
• Shareholders approved increase of shares
  to165 M; stock dividend to occur in May

• Provides financial and strategic flexibility

• Offers TDS potential to exchange shares
  for 18% of USM stock TDS does not own



                                                 33
    TDS: Excellent Prospects
• Full-service provider with strong, established
  wireless and wireline operations
• Strong business units
   • Well positioned in existing markets
   • Proven business strategies focused on
     customer satisfaction, network quality and
     competitive product offerings.
   • Experienced management teams
• Financially strong
• Dedicated workforce of 11,500 people             34
   Reconciliation of Additional Disclosures
                    For the quarter ended March 31, 2005

                                                                                                    TDS Telecom
  Quarter Ended at March 31, 2005                                       U.S. Cellular          ILEC            CLEC               Total
                                                                                      (Dollars in thousands)
   Operating cash flow:
     Operating income (loss) as reported                            $         36,237 $            40,645 $         (1,442) $         75,440
     Add:
        Depreciation, amortization and accretion                             127,250              34,264           7,303           168,817
           Operating cash flow                                      $        163,487 $            74,909 $         5,861 $         244,257

                                                                                                      TDS Telecom
  Quarter Ended at March 31, 2004                                       U.S. Cellular            ILEC            CLEC             Total
                                                                                        (Dollars in thousands)
   Operating cash flow:
     Operating income (loss) as reported                            $         28,282 $            48,644 $         (3,759) $         73,167
     Add:
        Depreciation, amortization and accretion                             113,894              32,547           9,011           155,452
        (Gain) on assets held for sale                                          (143)                -               -                (143)

             Operating cash flow                                    $        142,033 $            81,191 $         5,252 $         228,476


The Operating Cash Flow amounts in the tables presented above are not determined in accordance with generally accepted accounting principles
(GAAP) in the United States of America. Management uses Operating Cash Flow to evaluate the operating performance of its business, and it is a
measure of performance used by some investors, security analysts and others to make informed investment decisions. Operating Cash Flow is used as
an analytical indicator of income generated to service debt and fund capital expenditures. In addition, multiples of current or projected Operating Cash
Flow are used to estimate current or prospective enterprise value. Operating Cash Flow does not give effect to cash used for debt service requirements,
and thus does not reflect funds available for investment or other discretionary uses. Operating Cash Flow as presented herein may not be comparable to
similarly titled measures reported by other companies.                                                                                    35
              U.S. Cellular Reconciliation of
                   Service Revenues
                     For the quarter ended March 31, 2005
(Dollars in thousands)
Quarter Ended March 31, 2004:
Service revenue as reported                                                                               $ 619,382
Less service revenue attributed to markets sold in 2004                                                      11,546
Pro-forma service revenue for the three months ended                                                      $ 607,836


Service revenue as reported for the three months ended March 31, 2005                                     $ 668,792


Percentage year-over-year service revenue growth for the three months ended March 31, 2005:
Based on amounts as reported                                                             8.0%
Based on pro forma service revenue for the three months ended March 31, 2004            10.0%




  The pro-forma numbers above are non-GAAP financial measures as defined by SEC rules. Management believes they are
  useful measures to evaluate the company's performance excluding divested markets from both years' service revenues, but
  they should not be considered as alternatives to GAAP.


                                                                                                                            36
    TDS: Excellent Prospects
• Full-service provider with strong, established
  wireless and wireline operations
• Strong business units
   • Well positioned in existing markets
   • Proven business strategies focused on
     customer satisfaction, network quality and
     competitive product offerings.
   • Experienced management teams
• Financially strong
• Dedicated workforce of 11,500 people             37

				
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