Telephone and Data Systems, Inc.
Q2 2013 Earnings Call Transcript
Published:
- Operator:
- Greetings, and welcome to the TDS and U.S. Cellular Second Quarter Operating Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jane McCahon, Vice President, Corporate Relations for TDS. Thank you Ms. McCahon. You may begin.
- Jane W. McCahon:
- Thank you, Kevin. Good morning and thank you for joining us. 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 section of the TDS and U.S. Cellular website. With me today and offering prepared comments from TDS, Doug Shuma, Senior Vice President and Controller, from U.S. Cellular, Ken Meyers, President and Chief Executive Officer; Steve Campbell, Executive Vice President and Chief -- should I call you Chief Executive Officer, Ken? Steve Campbell, Executive Vice President and Chief Financial Officer; and from TDS Telecom, Vicki Villacrez, Vice President of Finance and CFO. This call is being simultaneously webcast on the Investor Relations sections of the TDS and U.S. Cellular websites. Please see the websites for slides referred to on this call including non-GAAP reconciliations. The information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the Safe Harbor paragraph in our release and the more extended version in our SEC filings. Shortly after we released our earnings, and before the call, TDS and U.S. Cellular files SEC Form 8-Ks including today's press releases and also pro forma showing the impact from both for divesture and the New York 1 and 2 deconsolidation. We think these are pro forma should be very useful to you. Both companies have also filed their Form 10-Qs for the quarter. On slide 3, you will see number of our upcoming conferences including Wells Fargo and UBS in New York and Citi in Las Vegas. As always please keep in mind that TDS has an open door policy. So if you are in the Chicago area and would like to meet with members of the TDS Corporate, U.S. Cellular or TDS Telecom, the IR team will try to accommodate you, calendars permitting. As many of you know U.S. Cellular selected a new President and CEO in June. Ken Meyers, who was previously CFO of TDS. We are pleased that the succession planning process enabled a smooth transition to a leader with tremendous company and industry experience not to mention his financial understanding. Before we discuss the business results though, Ken will outline how we are fulfilling the CFO responsibilities at TDS. Ken?
- Kenneth R. Meyers:
- Thanks, Jane. First and foremast let me say how honored I am to be leading U.S. Cellular and I will talk with you about the opportunities and challenges we see and our plans to address them in a moment. First, during my years as TDS's CFO we focused on building talent and expertise throughout the finance organization. Following my transition that preparation has enabled us to tap the bench and allow 3 key members of the TDSs senior management to step up and fulfill my prior responsibilities. Peter Sereda, TDS's Senior Vice President and Treasurer, Doug Shuma, Senior Vice President and Controller; and Jane McCahon, Vice President, Corporate Relations and Corporate Secretary will now jointly carryout those responsibilities and will report to TDS's CEO Ted Carlson. Doug Shuma has been designated Chief Financial Officer and will be certifying the SEC filings. They each bring substantial expertise in their field and independent thinking. We are confident they will enable TDS to continue to take the meaningful and decisive actions necessary to build a strong, sustainable business for the long term. In terms of interaction with the financial community, Jane will continue to lead those efforts, and Doug will take a lead role in the quarterly earnings process and call, and Doug and Pete both will participate in investor conferences and meetings as schedules permit. Now, I'll turn the call back to Jane to talk about share repurchase announcement, and then Doug will review the accounting impacts of the several of strategic initiatives. Jane?
- Jane W. McCahon:
- Thanks, Ken. Turning to slide 5, as you saw this morning we announced that the TDS Board has authorized another $250 million share repurchase program. In our meetings and calls with investors over the past few months, a strong case was made for the company to resume share repurchases. The company has executed meaningful repurchase programs in the past, but has not been active recently due to black outs surrounding many of the initiatives we've undertaken. We believe share repurchase add attractive valuation in combination with our regular quarterly dividend are effective way to return value to TDS shareholders overtime. We've also spoken about our need to invest back into our businesses in order to generate sustainable, long-term growth and profitability. We've identified cable broadband and hosted and managed services business as factor we believe we can leverage our current operation to add higher growth rate and better return overtime. So, our intent is not to do one or the other, neither investing in the business or with share repurchase exclusively, but to balance our acquisition program with our desire to return values to shareholders. So, for the next several years, we expect these costs to be down [ph] to be about 3/4 of available resources to acquisitions, and that of course is assuming we can find attractive deals on the right economic terms, and one quarter to shareholders through both the regular dividend and share repurchase. In any given period, this may not be the exact allocation, but we wanted to articulate this to you as our overall intention. Also, our process to monetize non strategic assets continues and got off to a strong start with the announcement of the sale of some [ph] AWS spectrum to T Mobile on very attractive terms. Other spectrum transactions may be of smaller sizes so we might not be announcing each one separately but every quarter we will update you on the aggregate sale. We continue to work on how best to monetize the non-strategic towers, which is a bit more complex process in the spectrum but is moving along. Now, I would like to turn the call over to Doug Shuma, to walk you through some of the significant items that are affecting our results. Doug?
- Douglas D. Shuma:
- Thanks, Jane. Good morning. Significant items that Jane referred to are shown on slide 6, first is the Sprint transaction that closed in May. U.S. Cellular received $480 million of cash in order to pre-tax gain of $266 million in the second quarter. We expect to pay approximately $130 million in cash taxes on this gain later this year. Going forward, we will continue to accelerate depreciation each quarter into early 2014 on the network assets we are operating on behalf of Sprint. In the second quarter, the accelerated depreciation was approximately $50 million and should continue at about that level through the back half of 2013. In addition, Sprint is reimbursing U.S. Cellular up to $200 million for certain network decommissioning costs including cell site lease rents and backhaul payments as well as the cost to actually decommission the network. We would expect a majority of the decommissioning to occur in late 2013 and 2014. Some portion of this $200 million will be reflected as additional gain on sale as the reimbursements come due. However, there are other costs that we are not being reimbursed for including the cost of store closing, certain employee termination costs and other contract termination costs. Most of these exit costs have already been recorded, but we expect some additional minor amounts in the second half of 2013. After New York 1 and New York 2, after the deconsolidation in the second quarter, the company retains the same percentage ownership in the partnerships and will continue to report the same amount of income from the partnerships except that the company now records such income differently. Beginning in the second quarter of 2013, the income is now reflected in equity and earnings of unconsolidated entities, rather than in the various line items of the statement of operations. Also, concurrent with the deconsolidation, U.S. Cellular recognized a one-time non-cash pre-tax gain of $18.5 million in the second quarter. Lastly U.S. Cellular has signed an agreement to sell non-strategic spectrum in the Mississippi Valley for $308 million. We expect this transaction to close in the second half of 2013, at which point a gain will be reported. U.S. Cellular expects to pay $96 million in cash taxes related to this sale. In addition, sale of non-strategic spectrum in St. Louis has been approved by the Board. Going forward, we will look for additional opportunities to monetize additional spectrum and towers. We expect these monetization activities to carry over into 2014. Now I’ll turn the call back to Ken.
- Kenneth R. Meyers:
- Thanks, Doug. Good morning again and thanks for your time today. There is a lot going on in U.S. Cellular to reposition the company for future growth, and I’m excited to be part of that change. I’m impressed with the steps taken to-date and we will be focusing our energies over the next few quarters on completing that process. As I sit here today about one month into the job, I do not contemplate major changes to the operating strategy. We are, and I expect us to remain, a regional carrier focused on mid-sized and rural markets. We will offer a full array of products and services, and our primary focus will continue to be on what we historically defined as a post pay customer, one who places value on the reliability of our high quality network and the special commitment to customer satisfaction that our associates deliver. This morning, and I’d like to talk with you about our immediate priorities and they are many. We have started a number of significant strategic actions that we now need to complete so we can accelerate growth in the future. These include launching our new billing system, expanding our distribution, continuing our 4G LTE rollout, expanding our device line-up and wrapping up the divestiture transaction. I’m happy to report we've completed the conversion on to our new billing and operational support system. All customers were converted as of last week, and the system is now up and running. It went about as well can be expected which means it had more customer impact than I’d like. Our stores and call centers were negatively impacted for a few days, and we were not able to provide the type of service our customers had grown to expect. We are now where we expect to be but a few days later than planned. We’ve talked about the significant resources financial and human, that have been focused on this project for the past several years, and we are looking forward to the capabilities and efficiencies that it will provide us going forward. More specifically, it provides us the flexibility to offer newer services and products faster, including shared data and equipment billing options. Distribution continues to get stronger. Besides the addition of Wal-Mart, we are working to strengthen both our agent channel where we had some real strong and committed partners, but also working on arrangements with other large retailers to meet our customers desired shopping choices. More to come on this in the future quarters. We remain committed to network quality as the most important driver of customer satisfaction and carrier selection. We are not only on target to reach our original target of bringing 4G LTE to some 87% of our customers by yearend, but now that coverage will include both Band 12 and Band 5. The later band will facilitate our introduction of Apple devices later this year. Speaking of which, we are actively planning for a very exciting second half from a device portfolio standpoint. We have a strong relationship with Samsung which is driving continuous innovation in smartphone and capital space, and Motorola which has a promising device roadmap including the Motorola X announced yesterday. Churn is a major concern for us and not having the iPhone has been a major contributor churn. Given Apple’s strong market share performance in the US, we’d expect to see improvement in both churn and growth additions with the launch. I know mentioning Apple products will lead to the inevitable question of when. All I can say on that topic is that we expect to launch these both products before year end. In May, we closed our transactions to divest the underperforming markets of people I've already spoken about which generated significant cash proceeds. Our Board declared $5.75 per share special cash dividend which was paid just before the end of the quarter. As Jane mentioned we recently entered into a transaction to free up about $308 million of value from some AWS licenses not core to our strategy and work remains underway to potentially monetize additional non-strategic spectrum and towers before yearend. Individual future transactions are not currently expected to reach the size most recent AWS transaction. Operationally, we are now in a position to focus on our core markets, mainly suburban and rural, to achieve the kind of penetration and profitability we believe is possible. As a result of the divestiture, the support organization in the U.S. Cellular were recently resized. While our associates understood the need for the change, it was not an easy task given the strong sense of team that our culture builds. We are also continuing our efforts to identify and reduce cost throughout the organization. Looking at the competitive landscape, consolidation, pricing moods, newer approaches to device subsidies all make for dynamic marketplace. Loss on equipment is a significant expense for the industry and U.S. Cellular. We are looking hard at ways to manage it while balancing those potential steps with our continuing drive to increase smartphone penetration especially with 4G LTE smartphones. With the successful conversion of our billing system we will be offering shared data before yearend, enabling us better monetize the explosive growth in data usage as well as the growing demand for connected devices. I’ll let Steve cover our second quarter financial performance. Hopefully, Doug’s overview gave you a sense of the extraneous items impacting the first half results, and those we expect in the back half. I’d like to end with a word of thanks to the entire U.S. Cellular team for welcoming me back into the organization. Steve?
- Steven T. Campbell:
- Thank you, Ken and good morning everyone. I’m going to begin my comments with a few thoughts about U.S. Cellular’s core market results for the quarter. And those results reflect the trends that we’ve seeing over the past several quarters, note that for comparison purposes the core market data shown on the next several slides of our presentation excludes the New York 1 and 2 markets which were deconsolidated in early April. So beginning on slide 9, postpaid gross additions in the core markets were a 165,000, nearly flat versus last year. Postpaid churn for the quarter was 1.64%, flat on a sequential basis but up a bit from 1.44% last year resulting in a postpaid net loss of 53,000 customers for the quarter. Prepaid net additions in the core markets were 8,000 down 15,000 from 23,000 last year. Total net retail customer losses in the core markets were 45,000, compared to 7,000 last year. Slide 10, shows the trends in smartphone sales penetration and postpaid ARPU in our core markets. During the second quarter, we sold 446,000 smartphones which represented 66% of total devices sold. This compares to the second quarter of 2012 when we sold 410,000 smartphones or 52% of the total units sold. 374,000 or 84% of the smartphones sold this quarter were 4G LTE devices. And now smartphones represent 46% of our postpaid subscriber base compared to just 36% for the same period last year. While the overall cost to subsidized smartphone especially the 4G LTE devices is greater, we expect that the higher ARPU from smartphone users as well as the migration of daily usage off our 3G network onto our 4G LTE network will benefit our results overtime. And as you can see on the graph at the far right postpaid ARPU increased about 1% over last year to $54.44. Turning to service revenues in the core markets on slide 11. In the core markets, second quarter service revenues were $866 million, a decline of about 2% from last year. Retail service revenues were $763 million, up slightly compared to the prior year. The inbound roaming revenues decreased $12 million or 16% year-over-year to $62 million as an increase in data usage was offset by lower voice usage and lower rates for both data and voice. Lower rates also drove $16 million reduction in outbound roaming expenses, despite significantly higher outbound data usage. Other revenues were about $42 million; in this category ETC revenues declined $8 million due to the phase out of Universal Service Fund support. As you recall that support has been phased out at the rate of 20% per year that began in July of 2012. Now let's look at total company performance. Service revenues were $911 million, down about 12% and the majority of this decrease is related to the divesture and deconsolidated markets. System operations expenses of $192 million decreased $51 million or 21% year-over-year. Approximately half of the decrease, about $25 million was due a decline in roaming expense due to lower rates and very slight decrease in off network usage. The rest of the decrease was due to primarily to the divesture transaction and deconsolidation of the New York 1 and 2 markets. Loss on equipment to the quarter was $133 million, up $16 million or 14% from last year primarily as a result of increased smartphone sales and higher costs related to 4G LTE devices. The average loss per device sold increased 40% year-over-year due primarily to the shift in mix to smartphones and in total we sold 14% more smartphones. We expect that equipment pricing will continue to be very aggressive across the industry, and that our cost will be impacted by the continue shift in mix to smartphones and the continuing introduction of 4G LTE devices throughout the year, including Apple products later in the year. Keep in mind that we are selling 4G devices in our 3G market so that we can capture the cost savings immediately when we launch 4G service in those markets. In fact, 40% of our data traffic is now on our 4G LTE network. As we successfully migrate even more customers to 4G we expect lower capital expenditure for our legacy networks, and we've reflected that expectation in our 2013 capital expenditures guidance. SG&A expenses were $404 million for the quarter, down $31 million as we aggressively reduce our expense levels to align with our reduced revenues. The New York 1 and 2 deconsolidation accounted for about $11 million of the decrease in costs. Operating income for the quarter was $219 million compared to $84 million a year ago. This year's number includes $200 million of income net toward divesture transaction related items which are shown on the next slide. In the quarter, we've recognized a $266 million gain on sale of business as well as $50 million of accelerated depreciation, amortization and accretion and $60 million of the contract termination and other costs which are shown in gain loss on sale of business and other exit costs in the statement of operations. As shown on the next slide, total investment and other income net for the quarter totaled $45.3 million including earnings of approximately $20 million related to our interest in the Los Angeles partnership, up from $19 million last year and $8.6 million related to the New York 1 and 2 partnership interests. This line item also includes the onetime gain of $18.5 million recorded at the time of the deconsolidation of the New York 1 and 2 partnership interests. Net income attributable to U.S. Cellular shareholders totaled $143.4 million or $1.69 per diluted share versus $52.7 million or $0.62 per share in 2012. Our effective tax rate for the quarter was 45.7% compared to 36.9% last year with the rate being higher this quarter as a result of the tax impacts of the onetime gain we recognized when we deconsolidated New York 1 and 2. For the quarter, we generated cash flow from operating activities of $225 million, up from $155 million last year. Cash used for additions to property, plant and equipment in the quarter was $172 million, reflecting significant expenditures related to our 4G LTE network deployment including the 850 megahertz band expansion as well as for our multiyear enablement initiatives, primarily our billing system conversion. Free cash flow for the quarter was $53 million. U.S. Cellular’s balance sheet remains sound, and we have significant liquidity and financial flexibility, together with expected cash flow from operations and funds available under our revolving credit facility to meet our expected financing needs. At June 30th, cash and short term investments totaled $578 million, and we have about $280 million of unused borrowing capacity under our revolving credit agreement. Next, I would like to review our updated guidance for 2013. As shown on slide 15, we are providing visibility to our estimates for our core markets because this is where we will be more focused going forward as well as for the divesture markets. Our guidance for the core market is unchanged from what we communicated last quarter whereas the guidance for the divesture markets has been updated to reflect actual results through the date of the closing and the fact that the transaction closed sooner than previously anticipated. Of note we have a number of initiatives over the next 6 months into which we don't have precise visibility, such as the timing and results to the launch of Apple products which could cause our actual results to differ materially from this guidance. Now, I'll turn the call over to Vicki Villacrez to talk a little about TDS Telecom.
- Vicki L. Villacrez:
- Okay, thank you, Steve. Good morning, everyone. Before discussing the results of operations, let me also first touch on each of our primary initiatives as shown on slide 18. With respect to IPTV, we launched service in one of 3 new markets where we will be leveraging existing fiber infrastructure and building new fiber to the home. Also, we've been focused on driving deeper penetration into our existing IPTV market. At June 30th, we had 10,500 IPTV customers and have passed approximately 85,000 service addresses, up from approximately 65,000 at yearend. We are seeing steady increase in our IPTV ARPUs and have reached a 12% penetration across our 11 markets which includes our more established Tennessee trial market. Over 90% of IPTV customers select expanded channel packages with 40% purchasing the highest tiered product we are offering both in internet speed and channel packages. 95% of our TDS customers are taking all 3 of our services
- Jane W. McCahon:
- Thanks. As we open up the call for questions I’d like you to know that Dave Kimbell, U.S. Cellular’s EVP and CMO and Mike Irizarry our EVP and CTO are also in the room to answer questions with us. And so operator, we can open up for that at this point.
- Operator:
- [Operator Instructions] Our first question today is coming from Michael Rollins from Citi.
- Michael Rollins:
- Two questions if I could, the first question is with respect to your capital allocation strategy. So in the commentary, you talked about a balanced strategy and when I think of the word balance, I think of something near 50
- Jane W. McCahon:
- Mike, it’s Jane. I think in terms of coming up with the 75
- Operator:
- Our next question is coming from Simon Flannery from Morgan Stanley.
- Simon Flannery:
- Great. Just continuing on the use of cash, you’ve got about $1.3 billion in consolidated cash and investments right now even if you’re include net the Baja purchase and the full buyback and take the proceeds in for Spectrum before the tower you’re still over $1 billion of cash resources. So does that imply that you’re looking for more acquisitions in the cable and HMS space and that we should be --that, that’s the way you’re going to expand or you’re going to be perhaps investing more from a CapEx point of view and things like data centers I guess what’s the right cash balance here. And in terms of the buyback perhaps you can remind us what your philosophy here is on sort of timing for these programs and what you’ve done in the past?
- Jane W. McCahon:
- Okay. Let’s start with the last one first I think in terms of historic buybacks this is our third $250 million -- fourth $250 million authorization. The first 2 were accomplished relatively quickly, the third one if you recall was not fully executed on because it expired during a blackout period. And so our approach to this would be to begin modestly. We really want to maintain as much financial flexibility as we can in terms of as we look at acquisitions and buybacks. So I think again we did not put an expiration date on it purposely to allow us as much financial flexibility as we can. In terms of cash balances it is anticipating further acquisitions in the cable space. There is also -- we want to make sure we have available resources to participate in any spectrum auctions for U.S. Cellular that’s an area where, while we’re divesting non-strategic spectrum in our non-operating markets, we’re very interested in participating in those auctions going forward. So considering all of those things
- Operator:
- Our next question is coming from Rick Prentiss from Raymond James.
- Richard H. Prentiss:
- Couple of questions, first back to Mike’s question on the towers, kind of in the bucket 1 bucket 2 you mentioned, right now you’re looking at bucket 1 which is the Midwest towers. What would cause you not to sell bucket 2 or what might cause you to sell bucket 2? What kind of differentiator is there between the 2 sets of towers?
- Kenneth R. Meyers:
- Rick, Ken, good morning. What we said historically and still are saying is that the towers in terms of where we are right now rolling out new technologies remain a strategic asset as far as we’re concerned. The towers that we are selling which are in the divested markets, no longer carry that label strategic. And so we are looking at options to monetize those. What I think I’ve said in the past and I remain there, is that we don’t have any current plans with respect to our core tower portfolio, but as we go through this process, one of the things we’re doing is we’re doing it also a learning exercise too. And there may be information that comes out of it that we haven’t considered before that may impact how we think about towers but right now our focus is just on the non-strategic towers.
- Richard H. Prentiss:
- Alright. And on the potential to grow bigger size and scale on the cable, broadband and HMS side, how should we think about what might be of interest to you? Is it geographically based? Is it price based? Is it the CapEx has been spent on the asset already like you mentioned Baja just needs 5 million [ph] maybe to get it up where you want to see it how should we think about what makes an asset attractive to you in those spaces?
- Jane W. McCahon:
- Vicki, would you like to start?
- Vicki L. Villacrez:
- Sure I’ll be happy to start with that. Certainly from the cable side what makes the cable so attractive to us is, number one it’s the natural extension of our business and the services that we already provide today. And we are looking for opportunities where we see high potential really to grow. As in the Baja acquisition you can see the markets are very attractive markets in terms of size, and demographics plus penetrations are below industry levels. Yes, it’s upgraded with DOCSIS 3.0 and so Baja is very well positioned to grow broadband and high margin broadband services. But we’ll also look at a plant that is not necessarily upgraded if we can make the economics work. We're looking to grow returns and we’re looking to get our returns exceeding cost of capital. So we’ll continue to look for opportunities wherever that might be. And then HMS same thing, we are looking to grow our HMS to be a meaningful addition to our growth portfolio. We’re very bullish on the performance of our acquisitions so far and especially the growth that we are seeing in our recurring revenue streams. And so we’ll continue to look for more opportunities to grow that business as well.
- Richard H. Prentiss:
- And then one operational question if I could. U.S. Cellular you’ve been seeing an increase in smartphones, you’re up to now I think is 45% in the core with 66% or so sales in the smartphones in the quarter, but their ARPU is still pretty low compared to a lot of others in the industry. Can you talk about as you look at the iPhone coming, LTE coming what are your thoughts as far as ARPU? And when customers are picking a carrier, is it network, is it devices, is it price?
- Kenneth R. Meyers:
- Ric, it’s Ken. Actually I’m pretty pleased with growth that we are seeing in ARPU; obviously you’ve got a mix effect going on in terms of the various different components whether they be connected devices, whether they be handsets whatever. But in addition to the growth that we are actually seeing in ARPU year-over-year you also have the impact of our rewards points which I think this year --this quarter probably, what is it, Steve, about $0.75?
- Steven T. Campbell:
- Yes, order of magnitude I think.
- Kenneth R. Meyers:
- Deferral that had we been accounting for that differently, you would have seen that flow right through. So, with the growth in data that we are seeing, I am pretty happy with the progression we've seen, we obviously are believers in monetizing data and we will have the ability to do that through shared data type plan later this year, now that we’ve got the billing system conversion for us or behind us, I am pretty happy with what we're seeing.
- Richard H. Prentiss:
- And see a long runway there?
- Kenneth R. Meyers:
- Yes.
- Operator:
- Our next question comes from Sergey Dluzhevskiy from Gabelli & Company.
- Sergey Dluzhevskiy:
- Two questions, one on spectrum, you own some 700 megahertz A block spectrum in a number of markets and obviously there are some interference issues with TV channel 51 so I was wondering if could share your thoughts on those interference issues. How serious do you think they are? And your opinion what is the timetable in terms of resolving those issues and when you think this spectrum could become usable. And also my second question is on your thoughts on the M&A environment and M&A activity in the wireless deals. Obviously we saw a number of deals and the most recent one is AT&T-Leap, so I was wondering how you think the recent deals are going to be in the competitive environment and markets in the near term.
- Michael S. Irizarry:
- This is Mike Irizarry, the CTO; I will take the first question around band 12, the lower chunk of that spectrum. We actually have that deployed in a number of our markets and it's working very well for us. We've done a number of baseline drives and investigation on interference and we see now operational and pre demand using the spectrum that we have in that part of the band, in our markets going forward. And we have in our devices and we are quite pleased with the performance there. We do think that the 600 megahertz auction that the SEC is looking at might free that band up in other areas of the country, perhaps for other carriers. But with regards to our portfolio and use of that spectrum we are very pleased with the performance of in our market.
- Kenneth R. Meyers:
- So Sergey, it's Ken. Yes, lot of activity in the M&A space, the way that we currently think about it is with respect to the AT&T-Leap transaction, so they are probably impact us is that we compete with AT&T more than we compete with Leap historically, so if AT&T were to expand their prepaid offering via Leap in other markets would see some action in the prepaid arena. But historically that isn't a major part of our business. So, I don't expect a significant impact from what I have seen so far.
- Operator:
- Our next question today is coming from Kevin Roe, from Roe Equity Research .
- Kevin M. Roe:
- Two questions. First on -- well both of them wireless. First on net additions. You mentioned you got the iPhone coming, shared data and installment equipment plans, do you think these new initiatives will be enough to turn postpaid net adds to positives?
- Kenneth R. Meyers:
- That's my expectation.
- Kevin M. Roe:
- That would be around the iPhone launch specifically?
- Kenneth R. Meyers:
- That will be the combination of them. The question, the implied question is the one question and since I don't have information I can share about when the iPhone launches, I am not going to put a quarter or date on that right now.
- Kevin M. Roe:
- And so actually taking the turn positive and stay that level for let say for ‘14.
- Kenneth R. Meyers:
- That's the expectation.
- Kevin M. Roe:
- Very good and secondly on wireless on margins. Given the divesture of non core assets and underperforming markets, does this new U.S. Cellular in your opinion have the ability to drive margins back to where they were a couple years ago, if you could comment just in general on the long- term potential for the new U.S. Cellular.
- Kenneth R. Meyers:
- I am not going to Kevin, 1 month in, make long-term statements like that. We will, we will get there right, but you know short term the challenge is going through this LTE migration with smartphones. I mean, big cost, expensive, very enabling devices, but we want to get as many as of our customers onto that LTE network as soon as possible. That’s obviously got [indiscernible] on cost, but as we monetize more of that data and continue to manage the rest of our cost, it’s the expectation that margin goes up, that's why we are in the business.
- Operator:
- [Operator Instructions] Our next question is coming from Phil Cusick from JPMorgan Chase & Co.
- Unknown Analyst:
- This is Eric [indiscernible]for Phil. A couple of questions if I can. Postpaid ad internal weaker this quarter than expected? Have you guys held back on promotion in anyway in anticipation of the iPhone launch or have you experienced high income deficient in particular from like the T Mobile since they started offering the iPhone? And secondly, it seems like industry is moving in two different directions with the T and Verizon going to data sharing direction and Sprint and T Mobile going the opposite direction with unbundling of handset subsidy. What are your thoughts and which direction can we expect U.S. Cellular to pursue?
- David Kimbell:
- Eric, this is Dave Kimbell, so on the kind of performance and promotion question in the second quarter. We had a strong portfolio of promotions throughout the quarter; strong portfolio device launches in particular Samsung devices. It was highly competitive period as well particularly with Samsung devices so, no it wasn't that we pull back in anticipation of anything else that we will do later in the year, just a I think consistent with recent trends and we were aggressive in continuing to drive our business forward. As we think about pricing structures going forward certainly there has been a lot of disruption in that space as some of the competitors are trying out different things. As Ken said in his remarks, we are moving towards a shared data platform that will be launching in September, and for us that’s a key part of our future going forward. We see that as a way to continue to drive ARPU growth that Ken mentioned to gain incremental connections with our current customers and attract new customers. So, we're certainly watching and monitoring what's going on in the business, we think it's --in the industry we think it's interesting that there is a new options, they give new choices and potentially different ways to manage our expense related to that and our billing system ,as that comes online, will give us a lot more flexibility and capabilities to offer new products. So, we will be looking at those but our future certainly going into the balance this year and into 2014 will be focused on a shared data foundation.
- Unknown Analyst:
- Great and one question on the TDS side, if I may. Does the company have a timeframe in mind or target for the HMS business could potentially more than offset the decline in the legacy business
- Vicki L. Villacrez:
- Sure, I'll take that question. We are -- our plans are calling for significant growth I think last year if you look at 2012, we had lower sales than expected in part due to the economy. HMS business also has a long sales-to-bill cycle, 6 months or more in some cases, to a year. We're really excited about the sales pipeline that we've seen in the first half of this year. We're looking to see improvement in the second half of this year, and that's going to translate to some nice revenue growth going forward. So as that continues to grow and picked up, that's our strategy to offset our legacy declines.
- Jane W. McCahon:
- Okay, Kevin, I think we are out of time.
- Operator:
- Yes. We've reached end of our question-and-answer session. I'll turn it back over to you for any further or closing comments.
- Jane W. McCahon:
- We would like to thank you for joining us today and follow up just please contact us with any other questions. Thanks so much.
- Operator:
- Thank you. This does concludes today's teleconference. You may disconnect your line at this. And have a wonderful day. We thank you for your participation today.
Other Telephone and Data Systems, Inc. earnings call transcripts:
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- Q2 (2023) TDS earnings call transcript
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- Q4 (2022) TDS earnings call transcript
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