Earnings Call Transcript - TDS Q1 2021

Operator, Operator

Good day, and thank you for standing by. Welcome to the TDS and U.S. Cellular First Quarter 2021 Conference Call. It is now my pleasure to turn the call over to your speaker today, Ms. Jane McCahon. Please go ahead.

Jane McCahon, Head of Investor Relations

Thank you, Operator, and good morning, everyone, and thank you for joining us. We hope that you and all your families are doing well. I 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 section of the TDS and U.S. Cellular websites.

Peter Sereda, CFO, TDS

Thanks, Jane, and good morning. Before speaking about the balance sheet and our funding strategies, I want to make you aware of the change presented to TDS Telecom. Starting this quarter, disclosures will now be presented at the sales segment, and the wireline and cable segments will be combined in the reported results. We believe this change not only aligns with how we manage the business and evaluate operating performance today but also enhances the visibility into how TDS Telecom is performing against its strategic objectives. The combined view better depicts our progress and success in leveraging a single cost base to become the preeminent broadband provider in each market in which we operate.

Jane McCahon, Head of Investor Relations

Operator...

Peter Sereda, CFO, TDS

The change in segments. I'm sorry. The change in... yes, are you still there?

Jane McCahon, Head of Investor Relations

Yes. You cut out for a minute.

Peter Sereda, CFO, TDS

Okay. The combined view better depicts our progress and success in leveraging a single cost base to become the preeminent broadband provider in each market in which we operate. The change in segment reporting has no impact on the net income of TDS Telecom in prior periods and prior periods have been conformed to the current presentation. You will notice that we have made enhanced disclosures of our progress in building out fiber-to-the-home in our presentation today so that you can more closely follow our progress in this very important initiative. Also, in terms of the results and impacting year-over-year comparisons, I want to remind everyone that we have a higher tax rate in 2021 compared to 2020 due to the income tax benefits of the CARES Act, which provided a one-time rate benefit in 2020 that does not recur in 2021. Regarding our balance sheet, both TDS and U.S. Cellular are taking action to lower interest expense, given the favorable market environment. In April, TDS and U.S. Cellular both announced redemptions of select senior notes. TDS is redeeming $225 million of its 6.875% senior notes and $300 million of its 7% senior notes, and U.S. Cellular is redeeming $275 million of its 7.25% senior notes for a total of $800 million. We will continue to look for ways to avail ourselves of other low-cost financing vehicles to further lower our interest expense. As we've discussed on prior calls, maintaining financial flexibility is one of the pillars of our corporate strategy. Over the years, we have worked to retain relatively low leverage levels, long-dated debt maturities, sufficient undrawn revolving credit facilities and significant cash balances while at the same time making sure we have the financial resources we need to fund our businesses. As you see on Slide 4, at the end of the first quarter, TDS continues to have a good financial position, including ample available funding sources, consisting of cash and cash equivalents and available credit facilities. While we will be using some of our available cash and partially drawing on our TDS revolver to call the notes previously mentioned, we believe we will have ample remaining cash balances as well as excellent access to the debt markets if additional capital is required and as further steps to reduce our interest expense are taken. U.S. Cellular and TDS Telecom are currently both in investment cycles, with U.S. Cellular investing in network modernization, 5G and spectrum and TDS Telecom aggressively investing in fiber expansion. In March, TDS issued $420 million in perpetual preferred stock, which will be used primarily for funding fiber deployments and the repayment of debt. This transaction enabled us to raise significant proceeds while protecting our credit rating.

Laurent Therivel, CEO, U.S. Cellular

Thanks, Pete, and good morning, everyone. Flip to Slide 6. Our strategic imperatives are simple. We're designed to drive growth and improve return on capital over time. I think we're off to a really good start this year. I'm going to let Doug cover the operational and financial highlights for the first quarter, then I'm going to provide a few thoughts on strategic priorities. First, I stated on previous calls that one of our areas of opportunity is to enter into strategic partnerships, better leverage the value of our assets and to grow the business. We made progress on this objective in April by signing a tower MLA or a master lease agreement with DISH Wireless. We expect this agreement to contribute to our tower revenue growth beginning in 2022. Any details on the deal have to remain confidential, so please keep that in mind if you've got additional questions. I spoke to you last quarter about some of our new initiatives to drive growth, including a regionalized approach to drive market share and plans for our business in government and prepaid segments. We have full steam on these, and I'm pleased with our progress. And you see that in year-over-year improvement in gross additions and improvements in churn for both postpaid and prepaid. I'm also excited for the next evolution of our brand journey and our new tagline, America's Locally Grown Wireless. U.S. Cellular has always been known for its outstanding network, its branding highlights, and strong local presence we have in our markets. I think this is what sets us apart from our competition and it reflects our culture and our values. More about competition. The competitive intensity of the wireless industry remains high, and we intend to respond as appropriate. Given the total spend on the C-band auction, I'm expecting continued rational pricing, and that most of the promotional activity will remain related to devices, and I think that's a world we can live in economically. A few words on our network position. Network performance continues to be a hallmark of our strategy. We're continuing our network modernization program and our multiyear 5G deployment. We've deployed 5G over each layer of spectrum, low, mid and millimeter wave. Our initial deployment for coverage is on clean low-band spectrum via 5G available to some degree in 18 states today.

Doug Chambers, CFO, U.S. Cellular

Thanks, LT. Good morning. As LT mentioned, we're off to a good start this year. Let's start with a review of customer results starting on Slide 7. Postpaid handset gross additions increased due to higher switch activity and our ability to capture a larger portion of that switcher group this year versus last year. The switcher group increase was driven primarily by March activity, which was severely depressed last year as a result of the unfolding pandemic and was bolstered this year by stimulus payments.

Vicki Villacrez, President & CEO, TDS Telecom

Thanks, Doug, and good morning, everyone. I'm very pleased with our results for the first quarter. We had strong growth in both broadband connections and revenue. Overall, we grew total organic connections for the third consecutive quarter. We added 13,000 fiber service addresses to our footprint and continue to execute on our fiber strategy. Overall, we grew our top line 4%. As Pete referenced earlier, the change to one-segment reporting results in a combined presentation of our wireline and cable operations. We have been on a trajectory to integrate our businesses around the common strategy of providing superior broadband service and complementing that with value-added video and voice service bundling. Whether it is our markets where we have upgraded copper or building fiber or provided DOCSIS 3.1 capability, we are striving to increase Internet speeds to better serve our customers. On a combined basis, we are able to offer 1-gig speeds to 55% of our total service addresses. We remain committed to our strategic priorities we've been invested in for several years. Our primary strategic objective is to provide growth by investing in our high-speed broadband services. We have a multifaceted approach to this growth that includes leveraging our existing networks and constructing greenfield fiber in opportunistic locations. With support from the FCC's A-CAM program and state broadband grants, TDS Telecom is also deploying high-speed broadband to customers in rural areas within our incumbent market. If you turn to Slide 17 of the earnings presentation, total residential connections increased 4% due to residential broadband growth in new and existing markets, partially offset by a decrease in voice connections. Total telecom broadband residential connections grew 9% in the quarter as we continue to fortify our network with fiber and expand into new markets. Bolstered by this growth, wireline broadband residential connections grew 10% and cable increased 8%. Total broadband penetration continues to increase, up 100 basis points to 38%. Overall, higher value product mix and price increases drove a 5% increase in average residential revenue per connection. Cable average residential revenue per connection reflects a higher mix of video connections relative to wireline. Our investment in TDS TV+ and our expansion into new markets will drive video connection growth. On Slide 18, you can see the broadband connection growth across all markets. This quarter, we achieved a major milestone, reaching 0.5 million total broadband subscribers. Residential broadband revenue grew 16% in total in the quarter. We are offering up to 1-gig broadband speeds in both our fiber and DOCSIS 3.1 markets. The 1-gig product is an important tool that allows us to defend markets and win over customers in new markets. In areas where we offer 1-gig service, we are seeing 17% of our new customers taking this superior product. Now turning to Slide 19. We have augmented our success, growing broadband with our TDS TV+ offering. Our next-generation video platform enhances the customer viewing experience and, as a bundle, these products provided best-in-class customer service and help us to increase our broadband market share and reduce churn. Residential video connections held nearly flat. Wireline growth of 7%, driven by our expansion markets, nearly offset losses in the cable market. Video continues to remain important to our customers. Our strategy is to increase our video connections through the offering of our cloud-based TDS TV+ product. This rollout of this product currently covers about 60% of our total operations. We continue to be bullish on our fiber strategy, which is shown on Slide 20. Fiber is the most economical long-term solution to deliver the best broadband experience. Selecting the right markets remains key and we have an attractive funnel of markets identified. In fact, Coeur d'Alene, Idaho and Spokane, Washington topped the list of the country's hottest emerging housing markets. This is according to the recent ranking by the Wall Street Journal. Our marketing and sales techniques enable us to effectively market at a neighborhood level. This gives us tremendous flexibility over timing and execution to consistently target a high broadband take rate. Our strategy to cluster our market is critical as it gives us economies of scale and better returns over time. Additionally, our strategy capitalizes on strong macroeconomic trends such as growing work-at-home environment, strong population migration in our chosen markets, favorable advances in technology and bipartisan support for rural broadband funding. Slide 21 shows the progress we are making this year on our multiyear fiber footprint expansion, which includes fiber into incumbent markets and also expansion into new markets. As a result of this strategy over the last several years, 321,000 or 38% of our wireline service addresses are now served by fiber, which is up from 32% a year ago. This is driving revenue growth while also expanding the total wireline footprint 6% to 855,000 service addresses. Moving on to Slide 22. We've highlighted the total service addresses for the clusters that are in construction and we are actively marketing. We have completed 321,000 fiber service addresses through the first quarter and are working to build out the footprint in these announced markets to 620,000 service addresses by 2024. We have identified other attractive opportunities where we can be first to market and expect to plant our flag in these markets in the near future, which will increase these numbers. We continue to be pleased with overall take rate in the areas we have launched to date. Our preregistration rate, which indicates the demand we are trying to satisfy, are even higher than our expectations. And we have a very high conversion rate when construction is completed. We are scaling up and are expecting our fiber service address delivery to double in 2021 from the prior year. On Slide 23, total revenues increased 4% to $249 million, largely driven by the strong growth in residential revenues, which increased 9% in total. The chart includes residential revenue mix, which highlights the increasing contribution of our expansion market. Incumbent wireline markets also showed impressive growth of 6% due to increases in broadband and video connections as well as increases from within the broadband product mix. This was partially offset by a 2% decrease in residential voice connections. Cable residential revenues grew 9% due to an 8% increase in broadband connections. Commercial revenues, which continue to be impacted by CLEC declines, decreased 6% to $47 million in the quarter. And wholesale revenues decreased 3% to $45 million due primarily to reductions in special access in the incumbent wireline market. So let me sum up. The combined financial results for the quarter as shown on Slide 24. Revenues increased 4% from the prior year as growth from our fiber expansions and increases in cable broadband subscribers exceeded the declines we experienced in our legacy business. Cash expenses increased 5% due to additional employee and advertising expense related to our expansion market. We also saw increases in video programming costs and information processing expenses, where we are making IT investments to simplify and consolidate our support systems. Adjusted EBITDA declined 1% to $81 million on lower interest income compared to last year. Capital expenditures increased 30% from last year to $70 million as we continue to increase our investment in fiber deployment and success-based spend for new customer installs. And finally, moving to Slide 25. We have presented guidance, which is unchanged from what we shared in February. We have had strong broadband connection growth across all our markets of operation, combined with increased average residential revenue per connection. We continue the rapid advancement of our fiber deployment in new markets, but we have portions of our fiber build that depend on third parties, which may impact our ability to stay on our very aggressive service address delivery schedule. I will continue to update you as we move through the year. And with that, I want to thank all our associates for their continued dedication to our challenging growth agenda. We have had a successful start to the year and look forward to updating you on the second quarter. And with that, now I'll turn the call back over to you, Jane.

Jane McCahon, Head of Investor Relations

Thanks, Vicki. And operator, we're ready to take questions.

Operator, Operator

Your first question comes from Rick Prentiss from Raymond James.

Richard Prentiss, Analyst, Raymond James

I want to take a look first at the guidances. At U.S. Cellular, came in strong in the quarter. And as we think about run rating that, obviously, increased the low end but kept the high end flat. I think Doug, you mentioned you're expecting maybe higher loss on equipment promotions. So as you think through that, is process service kind of at a good run rate level? And with the competitive environment, do you think you'll be able to achieve positive postpaid phone adds in future quarters and maybe for the year?

Doug Chambers, CFO, U.S. Cellular

Yes. Regarding the run rate of our guidance, as we mentioned on the call, the drivers include an increase in service revenue that flowed through to miscellaneous revenues, as well as favorable regulatory revenue and rate plan mix. From a run-rate perspective, selling and marketing expenses are a bit back-end loaded toward the end of the year, and we also see peaks in certain operating expenses in the second and third quarters because of the heavy construction and maintenance season. So the run rate is not uniform throughout the year. Again, I think we explained the reasons for the guidance in our comments. Regarding subscriber growth, we do not give specific subscriber guidance, but we are very focused on growing market share and our subscriber base. So the answer to that question is yes.

Richard Prentiss, Analyst, Raymond James

Okay. And for Vicki, on the TDS side, similar question then. Strong quarter, $81 million of adjusted EBITDA. What should we think as far as why you wouldn't be headed towards the high end of that guidance or why couldn't guidance go up? I assume there is some sales and marketing cost of service increases as you roll out more markets. But just wondering, the trends on TDS Telecom.

Vicki Villacrez, President & CEO, TDS Telecom

Yes. Thank you for that question. We did have a strong quarter and are very pleased with our results and where we're headed. Certainly, the strong start has given us some headroom for the year. As you know, we're ramping up construction for our fiber deployment, both within our incumbent market and in new expansion markets, and that will increase through the year. While I expect new growth revenue for the year, we will also experience higher costs as we launch these new markets. Every day we are bringing new neighborhoods online, and as they come into the fold we incur upfront costs. But we're well on track to hit and stay within our guidance range at this point.

Richard Prentiss, Analyst, Raymond James

And then following on, last question would be supply chain. On the U.S. Cellular side, any issues. We've heard others on their conference calls, talked about being skittish on the supply chain. Any concerns on handset supplies, network supplies? I know LG is out of the handset business. But just as from a supply chain standpoint from U.S. Cellular, both at the network side and from TDS Telecom, it does seem like given the 150,000 service addresses added this year, it might be tough. Just kind of talk to that.

Laurent Therivel, CEO, U.S. Cellular

Rick, it's LT. There are two supply chain drivers you mentioned, and I think they're the two big ones we're watching. LG is the first; we are well prepared for that. Most LG sales are on the prepaid side of our business and we have a fairly robust device ecosystem, so that does not concern me. I believe we can serve the demand that exists. On the chipset side, I pay a lot of attention. So far I am not seeing effects on our business. If there are impacts, we believe we can manage them. That area is getting a lot more of my attention. I would not say I'm skittish, but I am certainly concerned. We are watching it more closely. So far there is no impact, but that does not mean it could not happen if we start to see it ramp up. Vicki, do you want to address the telecom infrastructure side?

Vicki Villacrez, President & CEO, TDS Telecom

Yes, sure. We've been watching the supply chain very carefully, and we're in constant touch with many of our suppliers. And in some cases, we've diversified our suppliers where it's made sense. And having those choices helps. But right now, I think the biggest risk I see is the lead times are getting longer. And therefore, we have to be more diligent in our forecasting and our sourcing of our product needs much further in advance. And so some of the capital spend starts to go towards building up inventory. Not significant yet but definitely something we're watching. We're sensitive to the availability of electronics and gear that's associated with our fiber build. You're thinking about heads, connectors, drives, ONTs, modems, the chipsets are in modems. And so these are kind of the areas where we're seeing longer lead times. And so our partnership with our suppliers is really important. Thus far, we haven't had any issues with sourcing fiber, and we do secure that inventory with a longer lead time. Now as I think about your second part of your question, which is we delivered 13,000 service addresses in the first quarter, but we're looking to scale up and double down on the full year of delivering 150,000 service addresses. And our construction is not without challenges or obstacles, but we expect that really to ramp up. These are complex, large projects. And so securing the contractors and the labor for building out the fiber is also a critical component of our sourcing. And as we think about planting flags in new markets, working and contracting with those suppliers continues to be critical.

Operator, Operator

Your next question comes from Phil Cusick from JPMorgan.

Philip Cusick, Analyst, JPMorgan

A couple if I can. First, LT, you talked about the market going to promotions on handset discounts. I heard you that churn remains low and then involuntary, in particular, is low. Are you seeing involuntary churn ticking up at all as the world sort of reopens? And any shifting where customers are going when they leave?

Laurent Therivel, CEO, U.S. Cellular

There are slight upticks in involuntary churn, but I think that's completely in line with what you would expect when you start to see a slightly larger switcher pool. To answer the second question, no, there isn't a big shift in where they're going. We don't publish it, but our win share, loss share, and port ratios to different carriers have remained generally constant. So not a big shift there.

Philip Cusick, Analyst, JPMorgan

No impact from sort of cable getting more aggressive with T-Mobile showing up a little bit more in these markets?

Laurent Therivel, CEO, U.S. Cellular

We're not seeing it yet. I mean, I'm not suggesting that there's zero impact. But in terms of incremental impact, I mean, thus far, we're not seeing it.

Philip Cusick, Analyst, JPMorgan

Okay. And then, Vicki, under the categories of what have you done for us lately, I heard you say that new fiber addresses will double this year versus last. I think, 150,000 you said. Can you accelerate that fiber construction further? And any sign of incumbent telcos building in some of the areas that you find attractive outside of the LEC footprint?

Vicki Villacrez, President & CEO, TDS Telecom

Yes. Great question. We're very focused on scaling up our operations. Doubling the number of constructed fiber locations over last year, I think, definitely shows that the organization is scaling up. And last year, we more than doubled the prior year's. So we are very much focused on how we can go faster, how we can accelerate these builds. It's a real partnership, quite frankly, with the cities that we're building in, the support we need from city officials, the partnership with our suppliers and our construction contractors, and then our own teams. We're learning, and we take those learnings and put them into the next build. Of course, there will always be challenges as we run into different obstacles along the way, but we're learning and pushing our way through them. In terms of the ILEC competitors, good question. We are very confident in our fiber strategy, and we feel we've got a significant head start over the other telcos that are just starting to focus on deploying fiber. We've been doing this for a long time. We've fibered up one-third of our footprint, effectively overbuilt our own markets, and we learned from that. I think we're just continuing to accelerate our program, and we've got a headstart.

Operator, Operator

Your next question comes from Simon Flannery from Morgan Stanley.

Simon Flannery, Analyst, Morgan Stanley

LT, you talked a little about some of the new initiatives to focus on growth. Can you give us a sense of where we are in the rollout of these initiatives and their impact? When do you think we'll see the full benefits of these programs reflected in the results? There was some good progress this quarter, but do you expect to see more as the year progresses? Any thoughts on what's driving the total industry adds we've seen — I think you mentioned stimulus checks, but any other explanations would be helpful. Vicki, could you share your thoughts on the infrastructure bill and broadband funding from municipalities and others? How do you think about the opportunity for TDS there? Any thoughts would be great.

Laurent Therivel, CEO, U.S. Cellular

Simon, in terms of growth drivers, I had pointed to four, and let me give you a bit of an update on each one. One area I mentioned before is regionalization, taking a regional approach. We've begun trialing different promotional activities by region. Frankly, think of it as regional A/B testing, and it's working. We can quickly hone in on which promotions resonate and which drive traffic. From a regional perspective that is working nicely and as expected, and you can see some results in our postpaid performance. On prepaid, you're already seeing results from our greater focus this quarter, and I expect that to accelerate through the year. Our initial focus was lifecycle management. Previously we contacted prepaid customers irregularly—when they joined, when they lost eligibility, and when they left. We're now engaging with prepaid customers more frequently, which reduces churn, expands ARPU, and allows us to be more aggressive in acquisition. I'm comfortable with our prepaid position. Business and government is still a work in progress. I'm comfortable with what we've put in place, but it's a longer-term initiative. We hired someone from Sprint who has driven initiatives around channel expansion. We've become more aggressive on the indirect side, partnering with value-added resellers and master agents. Those efforts take time; I expect activity to pick up late this year and early next, though the lead time is longer as expected. The final driver is increased partnerships. You've already seen the impact of a more aggressive partnership approach with DISH in LA. I can't discuss the contract details, but to explain what being more aggressive means: we hired Austin Sommer to run that portfolio along with roaming and business development. We've focused on becoming a more attractive partner for entities seeking access to our towers. Our co-location rate has been below industry average, and we needed to fix it. We implemented tactical changes to shorten application cycle times, which are down significantly over the past six months. We also reviewed tower policies: historically we reserved a lot of data center and tower space for potential network expansion; we're still reserving some, but we've reduced it to free capacity for partners. We also decided to share tower assets like generators, shelters, and backhaul with partners when the economics make sense. These actions produced the DISH deal, and I expect more to follow. I hope that gives you a sense of our growth progress. I'm encouraged and expect these efforts to continue bearing fruit through the rest of this year and into next.

Vicki Villacrez, President & CEO, TDS Telecom

Sure. On the infrastructure proposal, we're watching this as it develops. We've seen the summary information, but the details are still forthcoming. Critics are taking aim at different elements, but I expect the broadband portion to likely survive the process. The total spending may be scaled back a bit. It's too early to speculate on how specifically the build will drive further growth at TDS Telecom, but we're definitely watching its development. Standing back, from additional funding through government programs we have a long history of participating, and right now we're active in the FCC's A-CAM program. Without that level of support, we would not be able to make the economics work to build in the very remote areas we are serving. We're in the fifth year of that program and have built out to half of the 160,000 location obligation, with more work to do. We're also in active discussions with the FCC and others about extending A-CAM because the start of that program was about 25-megabit speeds, and with the pandemic-driven acceleration of broadband adoption and higher speed demand, we are discussing extending the program to support higher speeds longer term. We are also participating in state broadband programs and the FCC's Lifeline broadband program and EBB, and we are evaluating participation in the American Rescue Plan. There are lots of opportunities in play, and we will update you as we move forward.

Operator, Operator

Your question comes from Michael Rollins from Citi.

Michael Rollins, Analyst, Citi

I want to go back to the comments, LT, you're making about partnerships. Just curious if you're also considering alternative strategic relationships with the industry. If you look at the direction of competition in your markets, is there an opportunity to improve the structure of your markets and to be able to just help that longer-term competitive positioning?

Laurent Therivel, CEO, U.S. Cellular

Simple answer is yes, Mike. I've been fairly clear on even on past calls that we're interested in a variety of different ways for us to better serve our customers, better improve return on capital. And I think that if you look at C-band, the amount of money that was spent in the industry on C-band, the amount of money that's going to be required to deploy that C-band spectrum, I think it's incumbent upon us as an industry to be creative on the way that we think about deploying that, the way we think about getting the best speeds and the best experiences to our customers in the most capital-efficient way. And so the simple answer is yes, right? We're certainly evaluating those options. These things take a lot of time. They don't just happen overnight, but that's something we're looking at.

Operator, Operator

Your next question comes from Sergey Dluzhevskiy from GAMCO Investors.

Sergey Dluzhevskiy, Analyst, GAMCO Investors

My first question is for LT. Obviously, it's great to see our lease agreement with DISH Wireless, and I understand that you guys are limited as far as what you could say. But could you maybe talk a little bit about the background of this deal, how it got to that point? And also maybe just, in general, talk about other conversations with other companies. What types of companies are you talking about potential lease agreements? Are there any nontraditional players that you're talking to?

Laurent Therivel, CEO, U.S. Cellular

Yes. Sergey, so I mean, how the deal came about. I mean, obviously, I'm fairly limited on what I can share. But I mean, just broadly, I think that we tried to make it fairly clear that we were open for business as far as our tower assets. I think that we have a relatively attractive value proposition. So I mean, my traditional competitors, from a wireless business perspective, I think about AT&T, Verizon and T-Mobile. And the tower business, obviously, have a different set of competitors. And so I think about our value proposition vis-à-vis those competitors a little bit differently. I think we've got the opportunity to provide better levels of customer service, faster cycle times, talked about that. I also think we have a set of assets that we can share in the form of shelters and generators and so on that some of our competitors can't. And frankly, I think that as a wireless operator, I'm also a customer of towers, and I understand what my customers want. And we're trying to take a fairly customer-friendly approach that some of our competitors don't always do. And so you put all that together, I think we're able to offer a pretty good value proposition, and clearly, that value proposition resonated with DISH. And I fully expect that, that's going to resonate with others as well. I mean we're fairly actively marketing those assets. We have a partnership with a marketing firm to help us with that. They do a pretty good job beating the bushes for potential customers, and I expect those co-location rates to go up over time. And those are dollars that drop right to the bottom line in the form of positive cash flow. So I'm optimistic about that business and we're going to keep pushing.

Sergey Dluzhevskiy, Analyst, GAMCO Investors

Great. And on a related question, your sister company, TDS Telecom has meaningfully improved its growth profile through fiber builds. And with the tower business maybe running it more like a tower company, potentially become a similar growth vehicle for U.S. Cellular, potentially enhancing revenue and profitability profile and helping increase valuation multiple on the stocks.

Laurent Therivel, CEO, U.S. Cellular

I mean in terms of the strategic opportunity for the tower business, I agree. That's a reason we're investing in this. I think it can be an attractive driver of growth. From a revenue perspective, I would argue more importantly from the cash flow perspective. It's an attractive vehicle for growth for us. I mean, we talked about it. I think we've kind of covered the separate company question in the past and that's not something that we're interested in doing. I think we see a lot of benefits in the operational synergies it provides us. The interesting thing is, in the past, we really looked at those operational synergies as primarily one-sided, meaning we own towers and they provide benefit to our network organization. What we're realizing is that there's another side benefit that being a network company that uses those towers, you can provide benefit to your customers differentially. I talked about that already but I think there's upside in both sides of the tower business. And you can expect to see us continue to push on that asset.

Sergey Dluzhevskiy, Analyst, GAMCO Investors

Great. My next question is for Pete. So there were some buybacks in the quarter, minor buybacks at both U.S. Cellular and TDS. But if one marks your cellular stake to market, TDS Telecom, which is transforming into growing fiber, and cable broadband business is trading, still at implied multiple of around 3.5x EBITDA, so why isn't this a level where you guys could do a more meaningful buyback or maybe a more consistent repurchase while still balancing your other capital allocation objectives?

Peter Sereda, CFO, TDS

Sergey, thanks for the question. We've talked before about the balance we're trying to maintain between keeping dry powder to invest in the initiatives Vicki and LT discussed today and returning cash to our shareholders through both the dividend and share repurchases. This quarter we raised capital in a rating-agency-friendly way by issuing perpetual preferred securities. Maintaining our rating is very important to TDS and is part of the long-term sustainability of the enterprise. As we ramp up the fiber funnel Vicki has discussed, we need to make sure we have the funds to make those significant investments. We'll continue to look at that balance. It probably will never fully satisfy you, but we'll do as much as we can to maintain it.

Sergey Dluzhevskiy, Analyst, GAMCO Investors

Great. And my last question is for Vicki, kind of on the competitive environment in the markets, particularly in the expansion fiber markets. You're certainly seeing nice broadband connection growth in those expansion markets. And I was wondering, what kind of competitive response have you seen so far from the incumbent players? And has anyone gotten particularly aggressive in some of those markets?

Vicki Villacrez, President & CEO, TDS Telecom

Right now, competitive response has been minimal, Sergey. I'm watching a number of things. First, the response from the cable company. As we enter new markets with fiber expansion, we generally expect to share the market with the incumbent cable company. If they've upgraded their network, we could both offer 1-gig speeds and we're even aiming to offer multi-gig speeds down the road. As for the ILEC, or the incumbent telephone company, for the most part we haven't seen any significant competitive response from them. I know some companies are talking about fiber deployment plans, but in these markets we get in, finish our construction, and with our preregistration sign-ups we get significant market share early in the first 12 months. So that strategy is working very well. The third thing we watch for is other fiber overbuilders, whether they're entering the same market or beating us to a new market we have our eyes on. Right now, I think that's the biggest focus. There's a lot of opportunity in the U.S. Our fiber funnel is wide, and as we look at our most attractive markets, getting to market first is key.

Operator, Operator

There's no further questions at this time. I would now like to turn the call over back to Jane for closing remarks.

Jane McCahon, Head of Investor Relations

I'd like to thank everybody for joining us today, and we look forward to further updates.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.