Good morning, and welcome to TDS and UScellular's Fourth Quarter 2023 Operating Results Conference Call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Colleen Thompson, Vice President of Corporate Relations. Thank you. 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, Michelle Brukwicki, Senior 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 their SEC Forms 8-K, including the press releases and our 10-Ks 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 paragraphs 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. I hope you are doing well. This morning, we'll take a quick look back at last year and also share with you our 2024 priorities and goals. 2023 was a challenging year for the organization, yet the teams navigated it well, and we ended the year in a good place as we move into 2024. Before we get into the details, I want to reiterate that as we announced on August 4 last year, we've embarked on a review of the strategic alternatives at UScellular. We are not going to comment on the process today except to say that it remains ongoing and that management of TDS and UScellular along with both boards are committed to a path that is in the best interest of the company and our shareholders. Given the nature of the process, we do not expect to have updates until it is concluded. Now, let's talk about the business. In 2023, we continued to make substantial investments in our businesses in order to improve our competitiveness while enhancing the customer experience. Over the last two years, TDS Telecom invested heavily and increased its total footprint by 21%, setting it up for strong top and bottom line growth as evidenced by Telcom's guidance for 2024. UScellular has made progress on its 5G rollout and expects to continue investing in mid-band deployment throughout 2024. UScellular also modestly deleveraged in 2023 and will continue to balance ongoing investments with the need to generate positive free cash flow. While reinvesting still remains a high priority, given the interest rate environment and high cost of debt, we plan on slowing our CapEx investments for TDS Telecom in 2024 as you can see in our guidance. Despite the high interest rate environment, TDS's weighted average cost of debt and preferred equity is 6.5%. We believe that we have the right mix of both long-term maturities and shorter-term financings to help fund our investments while appropriately managing through the current interest rate environment. We ended the year maintaining access to liquidity and we have a sizable amount of debt that isn't due for quite some time. I also want to note that in the fourth quarter, TDS Telecom took a $547 million non-cash goodwill impairment charge in conjunction with our annual goodwill assessment. This charge was due to a combination of factors, primarily rising interest rates and competitive pressures in our ILEC legacy markets. The non-cash charge eliminates all the goodwill at TDS Telecom and does not impact reported adjusted EBITDA or adjusted OIBDA. From a consolidated enterprise perspective, I'm pleased that we are maintaining rigorous cost discipline programs focusing on both OpEx and CapEx which led to moderate full year 2023 increases in adjusted EBITDA and reduced capital expenditures. And at the same time, allocating our capital towards critical network investments. Before I turn the call over, as you probably saw earlier today, TDS announced its first quarter dividend raising the rate modestly from 2023, as we balance the needs of our businesses and returns to our shareholders. I'd also like to take a moment to thank all of our associates for their exceptional hard work and dedication in these dynamic times. We are positioned well to execute against our priorities for 2024. And with that, I'll now turn the call over to LT.

Thank you, Vicki. Good morning, everybody. My remarks this morning are going to primarily focus on our annual results highlighting the key achievements in 2023, but then I'll turn to our priorities for 2024. Doug will then cover the fourth quarter results in a little more detail along with covering guidance. So let's start by reviewing the highlights on Slide 5. We've had a consistent message that we've reinforced in prior calls that our goal for 2023 was to properly balance subscriber objectives with financial goals. And I think our results are a reflection of that deliberate approach. As we discussed throughout 2023, our challenge was driving subscriber growth amid momentum in the context of an extremely competitive environment. We delivered on our operating cash flow and adjusted EBITDA guidance for the year. We were able to do so through solid growth in ARPU coupled with disciplined and efficient spending. For the full year, we delivered 2% growth in postpaid ARPU and a 3% increase in adjusted EBITDA. Last year was our first full year of offering flat rate plans. And we ended the year with 17% of our postpaid handset customers on these plans. It's up from 5% around this time a year ago. And I'm really pleased with how they're performing. Many of our customers benefit from the options of this lower service plan pricing in exchange for lower promotional value. And as a reminder, these plans generally provide the same economics to us as our traditional plans since we don't incur device expense. Our average in-contract rate for 2023 was just north of 62%, that's up 1.5 points from the prior year, and that helped us to moderate churn. For the full year, we modestly reduced both postpaid and prepaid churn. That's a nice result given the aggressive competitive environment. Turning to growth initiatives, our third-party tower revenues reached a milestone, crossing $100 million in revenues and growing 8% for the year. As I mentioned last quarter, as the wireless industry has moderated capital expenditures last year, we experienced a slowdown in new tenant and amendment activity, and I expect that will impact tower revenue growth rates also in 2024. That being said, we remain bullish on the long-term outlook for our tower business. Although the near-term activity has slowed, the long-term capacity needs of the industry are going to require future densification, and that's going to drive demand for our towers. We have a unique portfolio of towers that are still below the industry average in terms of colocation, so we have a lot of opportunity to grow. We also have strong momentum in fixed wireless. We finished the year with 114,000 customers, that's up 46% from a year ago. Over the last two years, we've seen strong performance with this product. And as a reminder, the vast majority of that growth has been on the low-band spectrum. Now that we're rolling out mid-band spectrum, we're going to be able to offer higher speeds and capacity where that spectrum is deployed. Since fixed wireless leverages the same network as our mobility product and the same investments, we believe this is a cost-efficient means to grow revenue and to grow cash flows. As I mentioned, we delivered a 3% increase in adjusted EBITDA over the prior year. And we did so through very disciplined and efficient spending. In fact, for the full year, we reduced cash expenses across LOE, system operations and SG&A. This is impressive given the usage on the network increased almost 30% in 2023. Speaking of the network, about 80% of our traffic is carried by sites that are modernized for low-band 5G. During 2023, we shifted our focus from 5G modernization to mid-band deployment. And similar to our previous network deployments, this will be a multi-year buildout. By the end of 2024, we expect to cover 30% of our POPs with mid band, and we'll have almost half of our data traffic running on sites that are equipped with mid-band spectrum. We plan to be targeted about this rollout in order to reach the most customers with the best technology as efficiently as possible. Finally, on the network, we sunset our CDMA network in mid-January of this year. The team did a great job in helping our customers migrate, and the vast majority of them are now on more advanced technologies that provide a better network experience. Turning to Slide 6 in 2024, our operational priorities remain consistent. Our top priority remains to balance subscriber growth with financial discipline. We delivered nice ARPU growth last year, and we expect to modestly grow it again in 2024. We feel like there's still room to bring customers up to higher value plans and offerings. In terms of promotions, we expect to focus heavily on retention offers, anticipate pulsing aggressive upgrade promotions throughout the year to ensure we're taking care of our customers and that we're retaining them. For fixed wireless in 2024, we expect our momentum to continue. With the addition of mid-band spectrum, we can provide an even better experience for our customers, enabling us to better compete against other carriers and cable wireless providers. As I mentioned, we also expect tower revenues to grow but not at the level that we saw in early '23. Probably closer to a low-to-mid single digit pace in the near term. We plan to keep working on our multi-year cost reduction program. We've had strong success in reducing costs throughout 2023. And we still see room for more efficiencies in the upcoming year. With all that in mind, we once again intend to be cash flow positive in 2024. Briefly, I'd like to spend just a moment updating you on efforts to help bridge the digital divide. 41% of the population that UScellular covers are in rural America. And as I've discussed in past calls, it's more expensive to cover rural America, more challenging network coverage environment, and there's less customer density to help pay for the investments needed. We would not have been able to bring the high-quality connectivity to many of these hard-to-serve communities without the support of the Universal Service Fund. In Washington, there are two programs being rolled out that can spur further deployment of 5G networks and enhance economic opportunities in rural areas. But those programs need to be aligned. They need to be sequenced carefully. The first program is the 5G Fund for Rural America, you know it as the 5G Fund, that has over $9 billion allocated to improve 5G connectivity across the country. The second is the BEAD program, that's $42.5 billion allocated to enhance broadband connectivity for homes and businesses across the country. And these are big dollars, and we as a nation owe it to rural America to spend the dollars effectively and efficiently. And as such, we believe the prudent course is to allow all of the BEAD funding decisions to be made before 5G Fund allocations take place. There are two reasons for that. First, BEAD will fund fiber density in areas that lack 5G coverage today. That'll significantly reduce the cost of tower deployment. Second, BEAD will fund some fixed wireless deployments, which will, by default, bring 5G mobile connections to those areas. After we have visibility into fiber and fixed wireless deployments funded by BEAD, the 5G fund can then further expand 5G mobile connectivity into rural areas that aren't covered by BEAD. Speaking of BEAD, we are encouraged with the opportunity we've seen so far in several states within our territory, including Missouri, Illinois, and Nebraska, which have included fixed wireless access in their plans for BEAD deployment. As I've said in the past, we have a compelling product that can meet BEAD's speed requirements and deliver a strong broadband experience to on and under-connected geographies in a relatively short period of time. We see a lot of advantages in working with the states on this, and we're going to continue to do so. Finally, before I hand it off to Doug, let me just share a few thoughts on guidance. Our guidance assumes a continuation of an industry-wide aggressive competitive environment that includes aggressive competition from cable wireless players. That's coupled with a focus on cost reductions and efficient capital spend at UScellular. Our focus remains on maximizing return on capital while generating positive free cash flow. We'll be pulling the available levers to improve both of these measures over time. I want to thank the entire team for their hard work and ongoing commitment to serving our customers. I'll now turn the call over to Doug.

Okay. Thanks, LT. Good morning, everybody. Let's start with the review of our customer results on Slide 7. For the quarter, postpaid handset gross additions decreased by 25,000 and net additions correspondingly declined 33,000, largely due to the intense competitive environment as well as an increase in churn, partially attributable to a decline in our in-contract rate. Connected device results were largely in line with the prior year and include the strong fixed wireless results that LT previously mentioned. Moving to Slide 8. Prepaid gross additions declined $18,000, driven by the competitive environment, a lower pool of prepaid gross adds, which is partially due to the availability of lower-end postpaid offerings and a reduced number of national retailers offering our full suite of prepaid products as we rationalize our prepaid distribution based on profitability. This decrease in gross additions was mitigated by an improvement in prepaid churn as we continued to enhance both pricing and digital engagement with our prepaid customers during 2023, and as a result, prepaid net additions decreased 11,000. Now, let's turn to the financial results starting on Slide 9. Service revenue declined 3% due to a decrease in our average retail subscriber base, partially mitigated by an increase in postpaid ARPU, which was largely driven by a decrease in promotional cost amortization. Power results are shown on Slide 10. The business delivered a solid quarter with $25 million of third-party tower revenues, which represents 3% growth. As LT mentioned, we are bullish on the long-term revenue opportunities of the tower business. On the next slide, as disclosed last quarter, our own towers are well diversified from a geographic and revenue distribution standpoint. Next, let's turn to our quarterly operating performance shown on Slide 12. For this discussion, I will refer to adjusted operating income before depreciation and amortization as adjusted operating income. As I mentioned, service revenues declined 3%. However, this decline was more than offset with expense decreases, which resulted in a 19% increase in adjusted operating income. Loss on equipment or equipment sales less cost of equipment sold decreased 38%, as a result of lower transaction volume and lower promotional cost per transaction, partially due to higher adoption of flat-rate plans where customers are not eligible for higher levels of device discounts. Consistent with the industry, we saw a decline in upgrade rates which contributed to lower equipment sales. Selling general and administrative expenses decreased 7%, driven by decreases in bad debts expense, the continued favorable impact from the reduction in workforce executed in the second quarter of 2023, lower selling-related expenses driven by decreased transaction volumes, and ongoing expense discipline across categories. Let's turn to our 2024 guidance on Slide 14. Our 2024 guidance contemplates the impact of our subscriber base decline in 2023, modest ARPU growth in a highly competitive and promotional environment as we continue to balance subscriber growth with financial discipline. We expect ranges of approximately $2.95 billion to $3.05 billion in service revenues, $750 million to $850 million in adjusted operating income, and $920 million to $1.02 billion in adjusted EBITDA. These ranges include the impact of shutting down our CDMA network from both a revenue and cost perspective in January 2024. At the time of the shutdown, we had approximately 18,000 remaining CDMA connections, and we are still working to provide these customers with new devices to access our network. This is down substantially from 174,000 CDMA customers at the beginning of 2023, and as LT mentioned, reflects the great work by our marketing and sales teams to ensure our CDMA customers transition to new devices to be able to continue service upon the shutdown. These customers will not be reflected as defections or churn in our 2024 results. However, the subset of these customers that ultimately defect will have the impact of reducing 2024 service revenues. In addition, shutting down our CDMA network is projected to result in approximately $40 million in run rate annual operating expense savings starting in 2025. Further, we expect the CDMA network shutdown to be accretive to 2024 adjusted operating income. For capital expenditures, we expect to invest between $550 million to $650 million as we continue our mid-band 5G deployment while prudently managing the level of this investment and the free cash flow of our business.

Thank you, Doug. And good morning, everyone. I'm pleased to report on TDS Telecom's 2023 accomplishments on Slide 15. We are successfully executing on our fiber growth strategy that began many years ago. We had strong momentum in 2023 which is positioning us well for 2024. We ended 2023 with all of our expansion communities initially launched. In 2023, we exceeded our fiber address delivery goal by adding 217,000 new marketable fiber service addresses. That's up 24% from our initial 2023 target, and it's quite an accomplishment for this team. As we make progress on our fiber deployments, we also focus on growing broadband penetration. For the year, we grew total broadband connections by 6%, mainly from growth in our expansion markets. Finally, to address the broadband needs of our most rural markets, we successfully secured enhanced A-CAM funding, which provides us with $90 million of annual regulatory revenue support for the next 15 years. That's $1.3 billion in total in exchange for delivering high-speed broadband to approximately 270,000 addresses. Turning to Slide 16, let me describe the vision we have for TDS Telecom. We are transforming ourselves into a fiber broadband company. We're doing this through investments in all of our market types, expansion, cable, and ILEC markets. First is our fiber expansion program. Today, we have 370,000 service addresses in our expansion markets. They are 100% fiber. We plan to continue growing our footprint in our expansion markets over the next several years. Next are our cable markets. We have approximately 500,000 cable service addresses which are already enabled with 1 gig speeds using DOCSIS 3.1 and fiber. 16% of our cable addresses are fiber today. Going forward, we will add more fiber opportunistically in certain markets and in new greenfield areas. Finally, in our incumbent wireline market, which we also refer to as our ILEC, we have just over 800,000 service addresses today. 43% of those addresses are fiber. We've been working to bring higher speeds to our ILEC for over a decade. Enhanced ACAM will help us put even more fiber into our ILEC network in order to meet the required speeds of 100 megabits per second down and 20 megabits per second up. The E-ACAM builds are expected to take place over the next several years. We have plans for how we will serve customers in each of our market types. We have many investment opportunities ahead of us with our fiber expansion and E-ACAM builds that will require capital spending. As we've consistently stated, we will prioritize our projects and continue to pace and manage our spending on these investments to stay within prudent capital and leverage levels.

Okay. Just as a reminder, we will not be answering questions related to the strategic review of UScellular today. Operator, we are ready for the first question.

Thank you. Our first question comes from Ric Prentiss from Raymond James. Please go ahead. Your line is open.

Nice. Good morning, everybody.

Good morning, Rick.

A couple of questions. First, I think people are a little surprised that there's a shelf filing at USM for, I guess, it says it's a mixed shelf debt preferred, or maybe some depositary shares. Explain to us what's the purpose of that shelf. And I've got two other quick follow-ups.

Yeah, Rick. First off, the shelf filing, we made a shelf filing actually both at TDS and at UScellular. Right now we're giving ourselves flexibility to keep all our options open. This is really administrative at this point, and it's in conjunction with replenishing our shelves. At UScellular, our shelf was set to expire in May, and we're getting ahead of it with the 10-K filing. So at this point, we don't really have any specific current intentions to use it now.

Okay. Second question is, LT, you talked, and Doug, you talked about churn and gross adds on the postpaid side. Looking at Slide 7, obviously there had been a tick up, even seasonally on the churn side. I think you also mentioned you're going to focus in '24 on retention. How should we think about churn going into '24? Is the third and fourth quarter indicative of kind of what we think is happening in the competitive universe, or are you going to really be attempting to get down back to prior year levels?

Yeah. Good morning, Rick. So a few things with that. One is when you look at the fourth quarter churn, about half of that increase about 5 basis points was due to some involuntary churn that got pushed from Q3 to Q4 based on some systems issues we had with our collections queue. So that's a one-time event that's not going to recur. As LT mentioned during his remarks, we're very focused on retention in 2024 and investing a lot of our promotional dollars in maintaining our existing customers. So our expectation or our goal in 2024 is to bring churn down. I will say early in '24, we're seeing some good signs, and we're keeping highly focused on postpaid handset churn in particular.

Okay. And then on the tower segment, obviously, some pressure there; CapEx spending in the industry has kind of slowed down a little bit. I know in the past we've talked about why not put in place a tower segment reporting, right, of anchor contract between UScellular wireless and UScellular towers. Can you update us as far as thinking about why not put in place a contractual relationship between UScellular towers and UScellular wireless?

Hey, Rick. There are really two questions to address. First, regarding the industry-wide slowdown, it's not surprising since we’ve seen other wireless carriers report a reduction in CapEx; most have completed their mid-band rollouts. Consequently, spending is tapering off, which impacts new tenancies, as reflected in the earnings results of other tower companies. We are not immune to this trend. However, we remain optimistic about our towers long-term. We believe we have solid Master Lease Agreements with all the wireless carriers. From my perspective, while I'm not privy to their strategy, it seems like Dish is taking a pause after fulfilling their last build-out obligation, but they have more planned ahead. Looking ahead at what will drive further capacity expansion in the wireless industry, there's no new spectrum available. The SEC currently doesn’t have spectrum authority, so new spectrum won’t be coming anytime soon. Thus, adding capacity will rely more on additional antenna installations and work hours, which indicates long-term growth prospects for the tower segment. We are hopeful about this, even though we noticed some slowdown in 2023 and anticipate it to increase in 2024. Regarding your inquiry about separate segment reporting, we’re continually reviewing this. To be honest, once a decision is made, it cannot be reversed. Therefore, we are being careful and thoughtful about the information we share and the timing of it. We’ve acknowledged your request and others for more transparency around our towers, and we are providing more detailed insights into that part of the business. However, we are not ready to implement separate segment reporting just yet, but it may be a possibility in the future.

Great. Thanks, everyone. Stay well.

Thanks, Rick.

Thanks, Rick.

Thanks, Rick. Next question.

Our next question comes from Simon Flannery from Morgan Stanley. Please go ahead. Your line is open.

Great. Thank you very much. Good morning. To start off, do you have any sizing of any exposure to ACP across the businesses?

Good morning, Simon. Yes, we do. So we're under index in ACP. We have about 20,000 ACP customers. We just don't have a lot there. Our marketing teams are working on giving those customers a soft landing to the extent that ACP does go away, which is the current expectation. So the short answer is minimal exposure.

Yeah. And, Simon, on the TDS Telecom side, very similar story. We have about 19,000 customers enrolled in ACP, and we too are following the SEC's direction in terms of winding down that program. We're working with all of those customers in order to try to find the right broadband product for them. There might be a little exposure there to customers who may not land with us. But we also see this as an opportunity. There are ACP customers of other companies that might be looking for a new provider, and we'd be happy to serve them. We have efforts in place to try to attract those customers. So impacts would be minimal, and anything is included in our guidance.

Great. That's very helpful. And then on the wireless affiliates, just looking at the guidance, it seems like the expectation is for fairly similar contribution to EBITDA in '24 versus '23. Is that right? Any comments on the trends there or any growth expectations on that?

Yeah. You're exactly right, Simon. We're expecting that to be relatively flat in '24 relative to what you saw in '23, so no significant changes there. Obviously, we don't directly control those entities or the distributions, but our expectation is pretty flat.

Great. And then there's the last one on the BEAD timing. I know, LT, you talked about the program on the 5G. In working with your states, I know we're going through sort of challenge processes and so forth. But what's your latest view on when we'll actually see actual awards take place and when we'll know more about the FWA role and so forth?

I believe funding will likely begin to flow late this year, with the bulk of it expected in 2025. I anticipate that states will introduce aggressive plans regarding fiber infrastructure, pricing strategies, and associated expenses. It will be interesting to see how well these plans are received. The success of the first round of the BEAD program remains to be seen. From our discussions, I remain optimistic about the long-term potential of fixed wireless, especially in rural areas, though it's uncertain whether it will be included in the initial phase with the states we're engaging with. I wouldn't expect significant funding to start until next year.

Great. Thanks a lot.

Okay. Next question.

Our next question comes from Michael Rollins from Citi. Please go ahead. Your line is open.

Thanks, and good morning. Just following up on the BEAD topic. When you look at UScellular as well as TDS, can you frame the type of financial capacity you have to go after BEAD opportunities? And if there are significant wins, how does that influence capital allocation for each side or both? Thank you.

Yeah. So, hi, Mike. For TDS Telecom, there's an important distinction here. So there are the two federal broadband programs. The first one is the enhanced ACAM program, and the second one is BEAD. It's our understanding that if addresses are under the enhanced ACAM program, which we opted into in almost all of our states, those addresses also cannot be funded by BEAD. This makes sense, as you wouldn't have two federal programs funding the same addresses. Because we've opted to be a large participant in the E-ACAM program, at TDS Telecom, we actually don't plan to be a BEAD participant. For capital allocation, our competing priorities are fiber expansion programs and the enhanced ACAM program, and BEAD does not enter into that equation in any significant way.

So, let me tackle it from a fixed wireless perspective, Mike. The first place I would point to is where there are going to be BEAD opportunities that can be served within the radius of our current tower build. Where we can do that, it's a pretty simple equation. We utilize existing mobile capacity. We leverage that capacity towards serving a fixed wireless need. If we can do that with the support of BEAD dollars, all the better. For those homes and businesses, we think we have a really compelling return on capital equation that comes along with that. What percentage of those are going to be, I have no clue. We kind of have to wait and see what the states come out with. There's a second set of homes that are not currently reached by fiber or by a sufficiently strong mobile signal that we can deliver a compelling fixed wireless product. For that, you need to put a new tower in. The reason that we've advocated for BEAD is that I expect BEAD will create a significantly denser fiber grid, completely irrespective of fixed wireless. That will bring our overall cost down to serve. I've mentioned this number before, but our cost to put a tower in rural America is between $650,000 to $1 million. If with BEAD dollars, I can bring that down to $100,000 or $200,000, then that could create a pretty compelling investment opportunity. I'll point you, though, from an overall high-level guidance, I'll point you to the priority that I finished our conversation with about 2024, which is we're laser focused on return on capital. If there are BEAD opportunities in '24 or in '25 that help us expand return on capital, meaning we can have really efficient use of our internal capital spend, and we can drive attractive returns on it, we'll participate. If it's not a good use of capital, we won't. I've also made that really clear to both the states and to NTIA. These programs have to be structured in a way that it's a positive return on capital equation, not just for UScellular but for anyone that's going to participate. If we were to expand our capital spend in the future because of BEAD, it would be because we see returns that are over and above the current ones that we would expect as part of our long-term plan.

Thanks. And just one other for you, LT. Going back to Slide 7, I'm just looking at the trajectory of postpaid handset gross adds, and I'm wondering if you can unpack a bit more of what's happening on the gross add front for UScellular? Are there opportunities to start to bend the curve on this and get greater output on that front? Thanks.

Yeah. The thing that has driven the slowdown in gross adds is a pretty simple equation, and it's been the expansion and the rise of the cable wireless players. If I rewind three years, they had a share of essentially zero in our marketplace or in the markets where we operate. Even though we see cable competing by now in about two-thirds of our footprint, they're still not everywhere. Their market share is still only in the 3% to 4%. But their share of gross adds is about 15%. How are they able to do this? Well, it's really twofold. The first is they offload almost 90%, depending on which statistics you look at. Let's call it 90% of their traffic is offloaded to Wi-Fi, but for us, that number is about 80%. 80% of the usage of our devices is done on Wi-Fi versus 20% on cellular. That doesn't sound like a big difference until you think about it from a usage perspective. For cable, 10% of a cable device user is on cellular, and they have to pay for that from a wholesale rate perspective. Whereas 20% of our usage is on cellular, so it's double the usage on the cellular network. Their overall network economics are quite attractive. Coupled with their ability to essentially cross-subsidize their plans with profits from their wireline business. Different people can agree whether wireless is a profitable business for the cable wireless players or not, but they wouldn't be in the business if they didn't find a way to make money. They're likely making money on wireless even with the price competition they're putting in place. The combination of better offload economics coupled with being able to cross-subsidize with wireless plans makes a difference. The fundamental change that has occurred in the industry over the last couple of years has been the rise of cable wireless. I don't see that changing in the near term. I continue to think that we offer a really attractive alternative of a great network and attractive pricing. We're going to keep doing that, keep competing.

Thanks. And one other quick one. You mentioned the overlap with cable in terms of the competitive nature against the wireless footprint that you have. What's the overlap competitively with the big three wireless national providers?

We see that approximately 60% of our markets have competition with them, and it's greater than 90% when considering all three major providers.

Good morning, guys. Thank you. Thanks for taking the questions.

Okay. Just as a reminder, we will not be answering questions related to the strategic review of UScellular today. Operator, we are ready for the next question.

Our last question will come from Sergey Dluzhevskiy from GAMCO Investors. Please go ahead. Your line is open.

Good morning, guys. Thank you. My first question is for LT on fixed wireless. So this C band being deployed, and in general, mid-band being deployed for you, how does that impact your approach to fixed wireless over the medium term? Also, what is the addressable market that you see with fixed wireless now that you have all your spectrum that you can deploy over the next few years? How do you think about the capacity needs for fixed wireless over the next few years?

Thank you, Sergey. To begin with, the overall market opportunity for our business remains at approximately 400,000 subscribers. This estimate is based on market dynamics, indicating that our product is competitive, and network dynamics, as it leverages investments in mobility. It's important to note that the product doesn't cover its own costs or the capital needed for new radios and towers. We install capacity for mobile subscribers and then redirect that capacity to fixed wireless wherever possible. Combining these factors leads us to the 400,000 market opportunity. Typically, growth rates slow as we achieve the customer scale we have now. However, the introduction of mid-band technology allows us to provide significantly faster offerings that can compete in both rural and urban markets, including against cable. We can deliver speeds of 300 megabits on our mid-band product. We anticipate that this product will be crucial for our growth in 2024 and 2025, and it will enable us to expand into new areas. By the end of the year, we expect 30% of our towers to support nearly 50% of our traffic with mid-band technology implemented.

Yes. Thank you. And my second question is for Doug. You've made some progress, obviously, on cost optimization program, but it's still a focus for you in 2024. If you could provide more color on maybe, which cost categories do you see as opportunities for more meaningful cost reduction over the next 12 months to 18 months? How should I think about that?

Yeah. Well, Sergey, first of all, you see the progress we've made on that. When you look at our 2022 margin compared to our 2023 margin went from 25% to 27%, as we talked about in our remarks, the program is working. Just to emphasize, we have this program organized across our business. We have 12 campuses; we have accountability from all our leaders, and everybody is delivering on this program. It's been really successful, and we'll continue to go after savings across the whole business. We still have opportunities in many of our areas. But as far as where most of the dollars are, it sort of follows our P&L; we have a lot of dollars in engineering OpEx that'll continue to provide significant savings as will market in IT. We're really proud of what we've done so far. There's more to do, and it's going to be across the business.

Sergey, I'll just chime in. Thank you for directing the cost question to the CFO, but the CEO occasionally has something to do with it, too. We've seen a lot of success in our efforts around automation, in our efforts around transparency and flexibility for our customers. We rolled out a new bill format that provides customers a lot of transparency, what they can expect, how the bill breaks down, what they can expect the following months. It's all automated. That has significantly driven down the cost of care. It's significantly reduced service-driven visits to our stores. We're still happy to see our customers in our stores, but it helps if a customer is walking in the store with an intent to buy rather than with a billing question. Simple moves like that focus on transparency and flexibility help bring down costs without any negative experience on the customer. We can expect to see more of those automation and digital investments from us in this year and beyond as well.

Got it. And my last question is for Michelle. You've made significant investments, obviously, in expanding your fiber footprint, and you still continue with your fiber build. Given where you are right now in terms of passings, how do you feel about the conversion of your passings into paying fiber customers? If you could provide more color on what has been working lately for you in terms of conversion of passings into paying customers and what still needs to be improved in your opinion in 2024?

Hi, Sergey. Thanks for the question. We have had a lot of success in continuing to grow our footprint and getting our build progressing in 2023; we had our biggest year yet. Customer sales and conversions into our service addresses are meeting and exceeding what we expected to see. This is happening generally across all of the markets that we've been launching. Our broadband penetration is shown in a chart in one of our slides that highlights how we expect that broadband penetration to ramp over the first few years after addresses get launched. In year one, we expect it to be about 25% to 30%. Of the addresses that we launch, about 25% or 30% of those addresses turn into paying customers. That's what we're seeing. Slowly over the next few years, that continues to build until you reach about a steady state of what we expect to be about 40% broadband penetration in those markets. A few of our markets have been launched and are far enough along to be able to get to steady state. In those early markets, we're over the 40% broadband penetration that we were looking for. We're really pleased with how the builds and the sales and marketing and customer conversion processes have been going.

Okay. Thanks, everyone, for your time today. Please reach out to IR with any additional questions. Have a great weekend.

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