Array Digital Infrastructure, Inc. Q1 FY2025 Earnings Call

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the TDS and UScellular First Quarter 2025 Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the conference over to Colleen Thompson, Vice President, Corporate Relations. Please go ahead.

Good morning and thank you for joining us. We want to make you all aware of the presentation we have prepared to accompany our comments this morning, which you can find on the Investor Relations' sections of the TDS and UScellular websites. With me today and offering prepared comments are from TDS, Vicki Villacrez, Executive Vice President and Chief Financial Officer; from UScellular, LT Therivel, President and Chief Executive Officer; Doug Chambers, Executive Vice President, Chief Financial Officer and Treasurer; and from TDS Telecom, Kris Bothfeld, Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and UScellular Investor Relations website. Please see the websites for slides referred to on this call, including non-GAAP reconciliations. We provide guidance for both adjusted operating income before depreciation and amortization, or OIBDA, and adjusted earnings before interest, taxes, depreciation, and amortization or EBITDA to highlight the contributions of UScellular's wireless partnerships. TDS and UScellular filed our SEC Forms 8-K, including the press releases and our 10-Qs earlier this morning. As shown on Slide 2, 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. And with that, I will now turn the call over to Vicki Villacrez. Vicki?

Okay. Thank you, Colleen, and hello, everyone. Thanks for joining us. As you will hear today, we are making progress on the 2025 priorities presented back in February, while keeping a close watch on the increased uncertainties in the broader economy and markets. We still expect a mid-2025 closing on the proposed transaction with T-Mobile at UScellular, which is subject to regulatory approval. The organization has been making great progress on a number of activities in preparation for a successful close. First, in terms of financing, we extended our near-term bank maturities and amended our revolvers to ensure financial flexibility and liquidity going forward as we anticipate the close of the T-Mobile and UScellular transactions. There is also a significant amount of separation, integration, and transition work being done to ensure a smooth transition across both UScellular and TDS. And lastly, we are also focusing on the future organization to ensure we have the appropriate capital, leverage targets and cost structure going forward, rightsized to the remaining business. Our focus is on getting to the finish line with the various announced transactions while repositioning the remaining business for future success. Also, as LT will discuss shortly, after the proposed transaction with T-Mobile closes and dependent on UScellular Board approval, UScellular expects to be in a position to declare a special dividend to shareholders. If that occurs, TDS would receive its pro rata share. Those funds from the first closing are expected to be used to repay substantially all of TDS' outstanding bank debt, which was approximately $1.2 billion at the end of the quarter. Currently, TDS does not plan to redeem the Series UU and Series BB preferred stock. If proceeds are received from subsequent closings, including the AT&T and Verizon transactions, TDS' priorities would be to fund and advance its current fiber program at TDS Telecom as well as evaluate the potential return to shareholders. Critical to our mission, we continue to be pleased with our overall progress in the fiber program, which has expanded our footprint over 30% in the last three years and we see further opportunities to grow the program. Briefly on the quarter, as a reminder, first quarter results were impacted by prior year divestitures. In the first quarter of 2024, there was over $40 million in operating revenues from our OneNeck business and $4 million in operating revenues from the sale of certain ILEC at TDS Telecom that did not occur in 2025. I will now turn the call over to LT.

Thanks, Vicki. Good morning everyone. As I look at the first quarter results, I'm pleased we continued to deliver solid operational performance, and that's notwithstanding all the efforts and the potential distractions associated with preparing to close the transactions that we announced last year. We delivered year-over-year improvements in postpaid handset results, and we increased third-party tower revenue 6% in the quarter due to both new colocations and escalators on renewed leases. We remain enthusiastic about the long-term potential for the Tower business as the capacity needs of the wireless industry in the coming years will likely drive continued demand for towers. We expect that the Tower business will be strengthened even further upon the anticipated closing of our transaction with T-Mobile and the initiation of the tower MLA that's part of that transaction. In addition to improved postpaid handset results, the company also continued its focus on cost optimization during the quarter by driving year-over-year reductions in cash costs as operating expenses, including loss on equipment were essentially flat and our capital expenditures declined. This drove $79 million of free cash flow in the first quarter of 2025, that's an $18 million increase over the same quarter last year. As we mentioned in our year-end call, we expect CapEx to decline in 2025 as we've largely completed our planned 5G coverage builds. However, we will continue to invest in 5G mid-band deployment across our network, so we can meet the capacity and speed needs of our customers with the goal of providing them with a strong network experience. Those subscriber and financial results are delivered on the backdrop of an industry that continues to be very promotionally aggressive and that's even during the typically less promotional first quarter of the year. What we're seeing, in addition to rich device promotions, our carrier competitors are offering multiyear price locks, contract buyouts and aggressive pricing. We're also seeing our cable wireless competitors offer free planned pricing for set periods of time, and that's now in conjunction with aggressive device promotions. So, in response to that, we've further increased the value of our promotional offers, which has helped to drive improvements in year-over-year handset losses. However, even with those improvements, we still have negative net adds and the ongoing loss of handset customers continues to put pressure on service revenues. In response to that, we're cutting costs in order to sustain our cash flows. Our size and lack of scale makes it difficult to sustain this balance of high promotional expense and reduced investments. That's why we continue to believe the transaction with T-Mobile is in the best interest of our business and our customers. It provides them with better competitive choices, better connectivity experience from the combined networks of both companies, and access to lower prices with more features. So, turning to the T-Mobile agreement. We're having ongoing interactions with regulators across multiple agencies. The process is progressing as expected, and we still expect a mid-2025 closing. As part of the agreement with T-Mobile, they'll be making offers of employment to more than half of our employee base. For those who won't be hired by T-Mobile or the remaining tower company, we'll be providing career transition services as well as severance pay and benefits. Doug will be providing you with some high-level estimates of those costs shortly. As a reminder, we expect the agreement with T-Mobile combined with the various spectrum transactions that we announced to deliver substantial proceeds across the coming quarters. Consequently, when the proposed transaction with T-Mobile closes and that's subject to regulatory approval, we expect the UScellular Board of Directors to declare the first of potentially several special dividends to UScellular shareholders. Now, before turning it over to Doug, I want to thank all of our associates for their continued efforts and dedication as we focus on serving our customers with excellence. And with that, I'm going to hand it over to Doug.

Thanks, LT. Good morning. LT covered the key operational and financial highlights for the first quarter, and I'll provide an update on expected net proceeds related to our pending transactions. As a reminder, given the expected close of the sale of our wireless operations to T-Mobile in mid-2025, we are not providing 2025 financial guidance for UScellular. During our fourth quarter 2024 earnings call in February of this year, we provided an overview of the significant items that are expected to impact net proceeds related to our various pending transactions. As we move closer to the expected close of these transactions, we have further refined these estimates and have included an updated summary on Slides 12 and 13. The spectrum transactions with Verizon and AT&T are contingent upon the close of the T-Mobile transaction, regulatory approval, and other closing conditions. First, as outlined in the securities purchase agreement with T-Mobile, $100 million of the $4.4 billion stated transaction price is contingent on UScellular achieving certain performance metrics prior to close. Based on projected performance relative to these targets through an expected mid-year 2025 close, we do not expect to receive most of this $100 million and the purchase price is likely to be much closer to $4.3 billion. Additionally, included in the stated transaction price of the T-Mobile and AT&T transactions are $400 million and $232 million, respectively, of spectrum licenses owned by designated entities in which UScellular is a non-controlling limited partner. UScellular has agreed to purchase the interest of the respective partners in these designated entities and transfers of these interests are pending regulatory approval. UScellular is obligated to pay an incremental aggregate amount of $7 million to the non-controlling limited partners upon transfer of these interests. We expect the transfers of these interests to be approved; however, the timing of such approvals is uncertain. Prior to the transaction close, T-Mobile will conduct a debt exchange offer pursuant to which holders of $2.044 billion of UScellular unsecured senior notes will be offered to exchange their UScellular debt for T-Mobile debt. The amount of debt that the respective holders elect to exchange will correspondingly reduce transaction proceeds. In addition, UScellular is expected to repay its term loans, export credit financing agreement, receivable securitization agreement, and revolving line of credit. At March 31st, 2025, the cumulative principal amount of this debt that requires repayment upon close was $870 million. UScellular expects the following cash obligations as it relates to employee liabilities. First, T-Mobile is expected to hire at least a majority of UScellular employees. For these employees that are ultimately hired by T-Mobile upon close, UScellular is obligated to pay these employees accrued wages, bonuses and other benefits that were earned prior to the close date. We expect the cash outflow related to this obligation in the range of $30 million to $40 million. This will not result in any incremental expense as these obligations are fully accrued at the end of each reporting period. Second, UScellular expects to have severance obligations for employees that are neither employed by T-Mobile nor retained by the remaining UScellular business. These obligations include salary-related severance, accrued bonus and other benefits, and we expect this obligation to be in the range of $60 million to $80 million. In addition, we expect unvested stock awards held by severed employees to vest at the close of the T-Mobile transaction. Certain of these stock awards may be settled with the affected employees in cash in lieu of shares. Furthermore, for stock awards settlement shares, UScellular withholds shares from employees' vested stock awards to cover tax withholding obligations and remits the corresponding amounts to the taxing authorities in cash. Thus, UScellular expects a cash obligation associated with the accelerated vesting of stock awards. The amount of any such obligation is dependent upon the amount of stock awards UScellular elects to settle in cash, if any, and the UScellular share price proximate to close, among other factors. This cash obligation is expected to approximate $50 million if all affected stock awards are settled in shares. This cash obligation is expected to increase as certain stock awards are settled in cash and any such cash settlement would lessen the dilutive impact of the stock awards relative to share settlement. UScellular expects to incur cash income tax obligations related to the tax gain on the sale of the T-Mobile transaction in the range of $225 million to $325 million. UScellular also expects other cash outflows of $80 million to $90 million related to the following items: banking fees related to both the T-Mobile transaction and the related debt exchange transaction, distribution of a portion of the proceeds from the T-Mobile transaction to non-controlling interests in certain UScellular operating markets, and other adjustments. As LT mentioned, we expect the UScellular Board to declare a special dividend proximate to the close date of the T-Mobile transaction to distribute net proceeds received from this initial transaction closed after incorporating the items on Slides 12 and certain other items, along with excess cash expected to be available resulting from the operation of UScellular's wireless business through the date of close. Moving to Slide 13, we expect to incur cash income tax obligations related to the gain on sale of Spectrum in the Verizon and AT&T transactions in the range of $325 million to $375 million. UScellular also expects to incur additional legal advisory and banking fees in 2025 and 2026 associated with the T-Mobile and Spectrum transactions. In periods after the close of the T-Mobile transaction, UScellular expects to incur decommissioning costs related to select towers that have no co-locators. Post-close of the T-Mobile transaction, UScellular intends to initially maintain leverage ratios relatively consistent with its current leverage levels. However, this target could be impacted by the result of the debt exchange offer. Again, we expect the mid-2025 close of the proposed T-Mobile transaction, and we hope this discussion helps you understand the expected net proceeds along with various dependencies and contingencies. I will now turn the call over to Kris Bothfeld.

Thank you, Doug. Good morning everyone. Turning to Slide 16. In the quarter, we delivered 14,000 new fiber service addresses, and we remain confident in achieving our goal of 150,000 fiber addresses this year. As a reminder, our expansion markets are primarily in Wisconsin and the Pacific Northwest and therefore, are impacted by seasonality. Now that we have moved beyond the winter months, we expect construction activity and address delivery to accelerate. In the quarter, we had 2,800 residential broadband net additions with 8,300 coming from our fiber markets. Fiber net adds are lower than prior quarters due to the timing of service address delivery. As our builds continue to ramp over the course of the year, we expect fiber net adds to follow. We also made meaningful improvements to our sales and marketing programs, including increases in third-party staffing of our door-to-door sales reps and changes to our internal door-to-door teams. As service address delivery ramps and we've strengthened our sales teams, we are optimistic that we can drive increased fiber net adds and penetration this year. In preparation for the enhanced A-CAM program, we executed on a number of construction contracts with third-party vendors and have begun construction in our first E-ACAM market in Wisconsin. The teams are excited to begin this program as it will bring fiber deeper into these communities. We are also making progress on our transformation efforts that I mentioned at the year-end call. To date, we've already identified $100 million in annual cost savings expected by year-end 2028. These cost reductions will help mitigate increased costs as we expand our fiber footprint and bring on new subscribers. These initiatives will streamline our operations and enhance elements of the customer experience. We are still in the early stages of identifying opportunities and remain optimistic about the full potential of this program. Turning to Slide 17. The teams remain focused on driving increased penetration. We added 2,800 residential broadband subscribers in the first quarter, with 8,300 in our fiber markets. Our fiber strategy is driving growth to help overcome industry-wide competitive pressures facing our copper and cable markets. In our fiber expansion markets, we have a solid track record of achieving 25% to 30% residential broadband penetration in year one, attributed to the success of our presales model. We ultimately expect to reach 40% average penetration in steady state, which is roughly five years after launch. Several of our mature markets have exceeded this goal. In our E-ACAM markets, we are expecting even higher penetration, 65% to 75% in steady state as we will be the only gig-capable provider in these areas. We are excited to bring gig speeds to some of the most rural geographies in our footprint. Starting this quarter, we are sharing residential fiber churn and total residential broadband churn. Customers like the speed and reliability of fiber. You can see this in our fiber churn, which was 0.9% in the quarter, lower than our overall broadband churn. Turning to Slide 18. Earlier this year, we updated our goals to reflect our ongoing fiber expansion and E-ACAM programs. We are targeting 1.8 million marketable fiber service addresses. We ended the quarter at 942,000. We are also targeting 80% of total addresses to be served by fiber. We ended the quarter at 52%. Finally, we are expecting to offer speeds of 1 gig or higher to at least 95% of our footprint, and we finished the quarter with 74% at gig speeds. We will use a combination of fiber and coax technologies to achieve this goal. On the right side of the slide, you can see the current service address mix and the projected service address mix once these goals are met. Our goal is to reduce the number of addresses served by copper to just 5% over time. To minimize reliance on copper, we will continue to look for opportunities to divest markets that do not have an economic path to fiber. In the first quarter, we reached agreements to sell two copper ILEC companies in Colorado. On Slide 19, you can see we grew total service addresses 6% year-over-year. Shown on the right side of the slide, we see increased demand for higher broadband speeds with 82% of our residential broadband customers taking 100 meg or higher and 24% taking 1 gig or higher at the end of the quarter. When looking at new customers that we added in the quarter, 56% took speeds of 1 gig or higher. Demand for faster speeds remains strong. As shown on Slide 20, average residential revenue per connection was up 2% year-over-year due primarily to price increases. We expect residential revenue per connection to moderate in 2025 as we focus on driving penetration. The chart on the right shows our revenue comparison year-over-year. As a reminder, the divestitures contributed $4 million of operating revenues in the first quarter of 2024. We'll talk more about revenue on the next slide. On Slide 21, I'll touch on the financials. Total operating revenues were down 3% in the quarter compared to the prior year, impacted by the divestitures, along with continued declines in commercial and wholesale revenue as well as decreases in residential video and voice connections. These variances were partially offset by increased residential revenue per connection and growth in fiber connections. Cash expenses increased 6% or $11 million in the quarter compared to the prior year. $4 million of this increase was a cumulative noncash adjustment to stock-based compensation. The remaining increase in expense aligns with our 2025 priorities and guidance, including investments in sales and marketing and advancing our transformation efforts. Additionally, we are working to staff and scale our internal construction crews to drive increased addresses at a lower average cost compared to external contractors. We expect to use these crews for approximately one-third of our fiber builds this year. All of these factors are putting pressure on adjusted EBITDA this quarter. Capital expenditures were down, consistent with lower service address delivery. We expect both CapEx and service address delivery to ramp throughout the rest of the year as we are still targeting to deliver 150,000 new fiber addresses in 2025. More than 80% of our full-year capital expenditures will be dedicated to fiber, primarily through investments in both our expansion and E-ACAM programs. On Slide 22, our 2025 guidance remains unchanged. Before I hand over the call, I want to take a moment to thank the entire TDS Telecom team for their hard work and dedication. Executing on our transformation requires alignment across the entire organization. I'm confident in our fiber strategy and excited about the opportunities ahead. I will now turn the call back over to Colleen.

Okay. Regina, we are ready for the first question.

Our first question comes from the line of Ric Prentiss with Raymond James. Please go ahead.

Thanks. Good morning everybody.

Good morning, Ric.

Thanks for the detail on the net proceeds of the transaction. I have a couple of questions regarding that information. The designated entity spectrum still needs approval. Do you anticipate that this will follow a similar timeline to the overall merger approval, or will it be on a different and potentially delayed timeline? I'm trying to understand what that process will entail.

Yes, good morning Ric, with respect to designated entity close, the timing is uncertain. It is dependent upon regulatory approval by the SEC, which we don't control. We did get good news related to our King Street qui tam matter. During the second quarter, we had noticed that the DC Circuit Court of Appeals dismissed claims brought by the relators. That was good news and hopefully, that will bode well for getting FCC approval. We're still waiting on the advantage ruling on that topic. But the short answer to your question is the timing is uncertain, but we're optimistic that we will be able to close the designated entities at some point in time.

Okay. You also mentioned that the net proceeds would include excess cash flow through closing. LT, you indicated that there might be around $79 million of cash flow in the quarter. How should we interpret that run rate of free cash flow? Is that the figure we should be considering as we think about what it might mean until closing?

I wouldn't consider that a run rate. I can say that we indicated our capital expenditures are lower in 2025 compared to 2024, which is a positive for free cash flow. We're not providing guidance on where we'll end up at the time of the transaction close, but we do expect there will be an excess amount of cash available for distribution if and when the board declares a special dividend.

Okay. And then any thoughts on the debt exchange offer? Obviously, how much of that this exchange impacts the purchase price or what debt is left at USM?

Yes. We cannot be completely certain, as the holders will ultimately decide. It is certainly attractive debt since most of it has a rate of 5.5% or 6.25%. If some of that debt remains, we would be interested in retaining it. However, we expect a significant portion to convert, especially those held by institutional investors, due to the difference in credit ratings between UScellular and T-Mobile. We anticipate some conversion, but it's challenging to predict the final outcome.

Okay. And one final one on USM side. Tower Company reporting more in line with like a REIT AFFO type of stuff. Is that something we should expect post-closing?

Correct. Yes. As we mentioned last quarter, in the first full quarter following the close, we plan to provide tower company reporting, including AFFO and related metrics.

Great. And one over on the TDS Telecom side, if I could. Obviously, you've talked about the third-party door-to-door efforts. Can you help us understand because obviously, it was a weak quarter on the broadband ads? How is that working out? What are you going to see kind of better net add traction as you head to those targets of year one penetration and ultimate penetrations?

Yes. So, let me add a little more color on our fiber net adds in the quarter. So we delivered 8,300 that was lower than prior quarters due to timing of address delivery. So the addresses that we launched this quarter, 14,000 were significantly lower than prior quarters. That was largely because of the cold weather and our markets largely being in the Pacific Northwest and Wisconsin. Because of our presales model, we see the most net adds come from those initial fiber launches. As our fiber address delivery is expected to ramp over the next several quarters, we do expect net adds to follow. To your point around the door-to-door teams, we have done a lot of great work this quarter to set a great foundation. We've brought on additional third-party resources. We've made some changes to our own internal teams to attract more candidates. We feel like we've really strengthened our sales teams. Once that address delivery ramps up, we're in a good position to capitalize that and add more subscribers.

Okay. Thanks everybody.

Thanks Ric.

Our next question comes from the line of Sebastiano Pettiat with JPMorgan. Please go ahead.

Thank you for taking the question. Just touching upon, I guess, in the prepared remarks there that you don't necessarily intend to redeem the TDS preferred. I mean one of the questions that we do get is that on an after-tax basis, those instruments perhaps might be a little expensive. So just kind of the thoughts around that in terms of why leaving them outstanding? And then I have a couple of other housekeeping questions.

Yes, good morning Sebastiano, thank you for your question. In my prepared remarks, TDS currently does not plan to redeem the Series UU and Series BB preferred stock. These are perpetual preferred stocks that we view as a strong foundation for our capital moving forward. We have implemented our interim financing and liquidity options post-close to allow us time to establish a more permanent structure for the future. Our current focus is on paying down our $1.2 billion debt, and we see these preferred stocks as essential foundational capital moving forward.

Thank you. Kris, could you provide some insights on the $100 million cost program by 2028? Specifically, how do you see the ramp-up happening and what potential benefits might we see in 2025? Additionally, could you elaborate on how this will scale as we approach the 2028 run rate over the next few years? On another note, regarding the TDS side and the Colorado sales, I believe there are $18 million in proceeds mentioned in the quarterly report. Can you share when you anticipate that closing and its expected financial impact?

Yes, hi Sebastiano. I'll address your second question regarding Colorado ILEC. We had around 2,000 subscribers, but we received $18 million in proceeds. These markets were quite small and isolated, operated with copper, and there was no viable path to fiber. We're pleased to have found a suitable buyer for these areas, which aligns with our strategy to reduce our reliance on the copper network. In terms of size, these transactions are relatively minor, and any impact has already been factored into our guidance. From a transformation standpoint, we're happy with the initial results of our program. We're just starting out, and we're confident in reaching $100 million in cost savings, which will affect both operational and capital expenditures. We expect some of these savings may be offset by typical inflation costs as we grow our operations and gain new subscribers. Additionally, we might reinvest some of the proceeds on the capital expenditure side. We're making significant progress and anticipate seeing some savings by the end of this year, with the total reaching the $100 million mark by the end of 2028. While we're not providing specific year-by-year savings details at this point, more information will be available in the future.

And our next question comes from Sergey Dluzhevskiy with GAMCO Investors. Please go ahead.

Good morning guys. Thank you for taking the questions.

Good morning Sergey.

My first question is for LT. On the Tower side, as you are preparing for T-Mobile transaction close and as you're dealing with current colocation demand environment, which is impacted by CapEx slowdown to a degree. I guess what are some of the things that are working well for you right now, even in this environment in terms of getting additional colocations? And what are some of the things that you're working on improving in order to increase third-party colocation ratio as you close the transaction and focus squarely on the Tower business going forward?

Good morning Sergey. I thought I might get through this call without any questions, but here we are. Regarding our Tower business, we're pleased to report a 6% revenue growth, which is driven not just by escalators, but more significantly by our ramp-up in colocation and new amendment activities. We are observing increased volumes for several reasons. First, there seems to be some movement from AT&T or Verizon, as they evaluate locations we currently support with roaming. There may be concerns over what will happen with roaming after the T-Mobile transaction, which could prompt them to transition from relying on roaming to actively utilizing our towers for service where we provide better coverage. Secondly, we've brought our sales and marketing efforts in-house. Previously, these were managed through a third party, but we've shifted to focus more on growth within the Tower business, and I believe this transition is starting to yield positive results. It's still early days, but we have greater control over our growth trajectory now, which is encouraging. Lastly, the demand for data continues to rise, and we don't see any significant slowdown in this trend. There is fundamental growth happening across the sector, as many carriers are also looking to fill existing gaps, which have been exacerbated by a shortage of new spectrum. We are seeing some discussions regarding spectrum acquisition at the government level, but nothing definitive or clear has emerged yet. Without new spectrum, carriers will need to pursue two strategies: acquiring additional spectrum and densifying their networks. We have valuable C-band spectrum that we believe will be appealing to potential buyers. Combining these three factors gives us insight into the growth we've experienced so far and instills optimism for the long-term prospects of our Tower business. On the operational side, I see significant opportunities primarily around operating expenses and the overall structure of the business. This operation has been part of UScellular and has received substantial overhead support from both UScellular and TDS. We are working diligently to establish a structure that enables this business to operate independently after the transaction closes. This effort will take time, and we will still have some overhead post-close that should gradually reduce. We will provide additional details in future quarters. Our goal is to create a framework for the business to operate efficiently and quickly as an independent entity; that’s likely our largest opportunity moving forward.

Got it. Great. And another question on the UScellular side. In regards to retained spectrum that is outside of the announced transaction, you mentioned, obviously, the majority of the values there relates to C-band, and there is still some time to monetize the build-out requirements not kicking in until 2029. So, while you are obviously going to be on the lookout for the right transaction, I guess my question is, in the meantime, do you see opportunities to some productive uses of the spectrum that could provide some revenue-generating opportunities kind of in the near-term, medium term, whether it's leasing the spectrum, whether it's focusing on specific sets of users, for example, in the critical infrastructure industries or other industries? So, kind of your thoughts on that front.

Yes, we are definitely open to that. The challenge is that when revenue starts coming from spectrum, typically people are not willing to pay for spectrum that can be sold in the next quarter. Our main focus is on selling it. If we don't find a strong market for selling, we would consider leasing it or exploring other innovative ways to generate returns. However, our priority is selling not just the C-band, but also the smaller incremental spectrum that remains. Our goal is to sell all of that spectrum. Fortunately, we don’t have to rush. In many cases, we have long build-out timelines. Even as we approach those timelines, the value in that spectrum and obtaining a good deal is much higher than the cost of development. If necessary, we could implement some sort of operational build-out for that spectrum, but we hope to avoid that. We would much rather sell it, and we believe that is the direction we will take. This is the overall strategy for monetizing not only the C-band but also the other bands.

Great. And a question on the TDS Telecom side. So, over the past year or year and a half, TDS Telecom has announced and closed on several divestitures, obviously, ILEC properties in Virginia, cable operations in Texas, most recently, ILEC in Colorado. I guess a question for Kris, in general, how are you approaching divestitures in your wireline and cable portfolio? Do you see additional opportunities to dispose non-core assets? And how meaningful could they be kind of over the medium term? And what are the main criteria you employ when you decide whether to monetize an end market or continue investing in?

Yes, I can add a little more color on that. We do have a lot of capital needs in front of us. We have both fiber goals with our E-ACAM program and our ongoing fiber expansion program. We really are constantly evaluating our portfolio to ensure that we're putting our resources in our most strategic opportunities. We're especially focused on looking at copper markets that do not have an economic path to fiber because we want to minimize our exposure to our copper network in the long run and ultimately get out of the copper business. A lot of these markets are markets that were overbuilt, so they were not eligible for E-ACAM. Given the density of these markets, it just was not economic to then also upgrade these areas. From a strategic lens, that is exactly what we're looking for. Are these markets that are more isolated, do not have an economic path to fiber, but then they also have to meet our financial criteria. We want to make sure that the net proceeds we receive are greater than what the present value of those cash flows would be to us if we continue operating those markets. All the divestitures we've done so far have met those criteria, and we're constantly looking for other opportunities that fit that as well.

We have a follow-up question from the line of Sebastiano Pettiat with JPMorgan. Please go ahead.

Hi. Thank you for allowing me to ask a question. I previously mentioned this during the call regarding the announcement of the USM sale to T-Mobile. We often receive inquiries from investors about why USM should remain a public entity. Are there any advantages or disadvantages to consolidating the structure, with TDS potentially buying out the minority shareholders? This approach could reduce tax leakage from some asset proceeds in the future. Vicki, I would appreciate your thoughts on this. Thank you.

Yes, sure. Thank you for the follow-up question. First of all, look, when we closed the transaction with T-Mobile and UScellular, we will be two public companies. We will have a strong business in place at UScellular with the Towers and the Partnerships, both providing predictable cash flows and attractive margins and growth as we're looking at our Tower portfolio. Then, of course, on the TDS side, we have the fiber program and its profile of attractive returns over the long-term and its investment cycle. So, I think there's any number of paths that we could take longer term. We're not there yet. As you know, right now, we're just really focused on top priorities of getting to a successful close in a couple of months. There’s a sequence of critical steps that we're focused on before close and after close, which I outlined in my comments today.

From the UScellular viewpoint, the additional cost of operating as a public company is relatively low. We are not seeing significant cost savings from the merger. It primarily involves using capital more efficiently and improving tax flow structures. TDS will likely continue to assess this moving forward. However, UScellular does not have a strong incentive to merge at this time.

Hey, we are tag teaming today. I wanted to come back to the question on leverage at UScellular. Doug, I think you mentioned you would post-transaction like to keep leverage similar. So, are we talking like 2.5 to 3 turns of leverage at UScellular post-transaction when it becomes predominantly as LT pointed out, a Tower Company?

Yes, I would say closer to 3%, but it really depends also on the debt exchange offer and the residual that is left there that might compel us to go higher given the attractiveness of that debt. But that's in the ballpark, Ric.

Okay. And it really does come down to that how much it gets exchanged. What's the timeframe for the exchange as transaction closes and then what time frame people have?

Yes, it will be launched about 50 days or so before we anticipate a close to make sure we have adequate time for the holders to affect their exchange and there's certain requirements there. So, that's the estimated timing. Once we have an estimated close date, that will determine the launch of that offer.

And then expecting to have exchange done concurrent with the closing or shortly after or before?

Concurrent, yes.

Okay. Thanks again for joining us today. Please reach out to IR if you have additional questions and have a great weekend.

That will conclude today's call. Thank you all for joining. You may now disconnect.