Transcript investors.uscellular.com

Kenneth R. Meyers
Executive Vice President – Finance,
CFO and Treasurer
Tenth Annual UBS Global
Communications Conference
November 17, 2005
1
Safe Harbor
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All
information set forth in this news release, except historical and factual information,
represents forward-looking statements. This includes all statements about the
company’s plans, beliefs, estimates and expectations. These statements are based
on current estimates and projections, which involve certain risks and uncertainties
that could cause actual results to differ materially from those in the forward-looking
statements. Important factors that may affect these forward-looking statements
include, but are not limited to: the final results of the restatements and results of
operations for the quarter ended Sept. 30, 2005; possible future restatements;
possible material weaknesses in internal controls; the ability of the company to
successfully manage and grow the operations of the Chicago MTA and newly
launched markets; changes in the overall economy; changes in competition in the
markets in which the company operates; changes due to industry consolidation;
advances in telecommunications technology; changes in the telecommunications
regulatory environment; changes in the value of investments, including variable
prepaid forward contracts; an adverse change in the ratings afforded our debt
securities by accredited ratings organizations; pending and future litigation;
acquisitions/divestitures of properties and/or licenses; and changes in customer
growth rates, average monthly revenue per unit, churn rates, roaming rates and the
mix of products and services offered in the company’s markets. Investors are
encouraged to consider these and other risks and uncertainties that are discussed in
documents furnished to the Securities and Exchange Commission.
U.S. Cellular
as of 9/30/05
• 6th largest wireless service provider; 2nd largest
regional carrier
• Total population - 45 million
• 5.3 million customers
• 11.8% market penetration
• Focused on exceptional customer experience
• Low churn rate
• Pervasive distribution… 1,825 points of presence
• Extensive network ... 5,149 cell sites
• Well positioned in our markets
USM Growth Strategies
• Regional carrier
• Differentiate by driving for high level of
customer satisfaction
• Excellent customer service
• Quality CDMA 1X network
• Broad distribution
• Strategically strengthen regional footprint
Postpay Churn < 2%
Strong track record
2.0%
1.9%
1.8%
1.7%
1.6%
1.5%
1.4%
1.3%
1.2%
1.1%
1.0%
1.9% 1.9%
1.8%
1.8%
1.7%
1.5%
1.5%
1.5%
1.5%
1.4%
1998 1999 2000 2001 2002 2003 2004 1 Q
'05
2Q
'05
3Q
'05
J.D. Power and Associates
2005 Wireless Customer Satisfaction Study
• U.S. Cellular rates #1 in customer
satisfaction in North Central* region
• North Central considered “most competitive
region”
• Tied with Verizon Wireless
• Study examined customer experiences in 6
geographical regions in U.S.
• Based on input from 24,096 wireless users
* North Central region: Illinois, Indiana, Michigan, Ohio and Wisconsin
Consumers Union Analysis of FCC
Data - March 28, 2005
(complaints per million customers for CY2004)
U.S. Cellular
Verizon Wireless
39
76
Alltel
Nextel
Sprint PCS
76
103
168
T-Mobile
Cellular One
AT&T / Cingular
185
264
289
Strengthening the Footprint
• Acquired Chicago market – 8/02
• Exchanged wireless properties with AT&T
Wireless (now Cingular) – 8/03
• Sold:
• Daytona Beach to MetroPCS – 12/04
• Two small markets and investment interests
to Alltel – 12/04
• South Texas markets to AT&T Wireless – 2/04
• Acquired Missouri 14 market – 4/05
USM to Exchange Assets with Alltel
Strengthens Midwest footprint
• Expected to close late 2005
• USM receives 146,000 customers (125,000
retail) in Kansas and Nebraska
• Alltel receives 91,000 customers (90,000
retail) in Idaho plus $50 million cash
St. Louis Market
Strengthens geographic footprint – launched 7/28/05
• Acquired 2.9 million pops in trade with AWE
• Great network – over 300 cell sites
• Broad distribution - 20 retail stores and 30 agent
locations at launch
• Turned-on for roaming since Oct. ’04
• Off to a good start … >80% of adds are postpaid
Auction 58
• Participated through partner Carroll Wireless
• Carroll Wireless highest bidder for 17
licenses with a population of 14.4 million.
Licenses are in 11 states and include:
• Oklahoma City
• Portland, Maine
• Indianapolis
• All licenses complement U.S. Cellular’s
existing footprint. Total bid $130M
CDMA 1X Initiative
• Improved voice capacity and coverage;
cost-effective use of wireless spectrum
• Enables offering of high-speed data products
• Completed the 3-year project in 2004
• Ahead of schedule, below planned cost
• Total cost to build CDMA ... ≈ $300 million
Data – easyedgeSM
• easyedgeSM Phone Download Applications (BREWTM)
• Applications: games, news, traffic, calendar
• Launched nWebSM Nov. 2004 – enables Internet access
• Launched AOL® Instant MessengerTM service March 2005
• easyedgeSM Picture Messaging (MMS)
• Take, send or receive photos
• easyedgeSM Wireless Modem Service
• Wireless Internet access for laptops; e-mail; calendar
• Available in select areas to business customers
Data Revenues Growth
easyedge & SMS
Millions
35
$29
30
$31
$23
25
$19
20
$14
15
$11
10
5
0
1 Q '04
2 Q '04
3 Q '04
4 Q '04
1 Q '05
2 Q '05
New Offerings
• Inter-carrier picture messaging Verizon Wireless,
Cingular Wireless, Alltel and with others
• SpeedTalkSM – “push-to-talk” service … 2-20
people for added $10 / mo … off to a good start
with SME customers
• Smart Phone --- Q4, 2005
EVDO Trials
• As with any new technology, U.S. Cellular
wants to ensure that:
• Technology is supported by value-added
applications customers will want and value
• Ready to fully support the new technology and any
new services or applications it supports
• Plan to launch marketing trials in second half
of 2006 – Release O
• Launch Release A in early 2007
Third Quarter Financial Highlights
3Q ‘05
3Q ‘04
Tot. customers
5,303,000
4,828,000
Post pay churn
MOU
1.5%
639
1.6%
553
Cell sites
5,149
4,713
CAPX
$129.6 M
$131.7 M
Third Quarter Results
Currently Anticipated
2005
2004
(as Restated)
Operating Revenue
$788 – 798 M $728 – 748 M
Dep, Amort, & Accretion
$123 – 129 M $124 – 130 M
Operating Income
$
Net Income
$ 33 – 37 M
$
23 – 27 M
Diluted EPS
$
$
.27 - .32
OCF
$183 – 199 M $170 – 186 M
60 – 70 M $
.37 - 42
46 – 56 M
Recent Financing Transactions
2004
• Redeemed $163.3 M of LYONs
• Redeemed $250 M of 7.25% Notes due 2007
• Sold $330 M of 30 year 7.5% senior notes
• Sold $100 M of 30 year 6.7% senior notes
• Amended & increased revolver to $700M
Dividend and Investment Income
• Vodafone dividends
• 5.5% ownership of L.A. market ~ 945,000 pops
• Acquired ownership through original MSA lottery
• Investment Income:
• Cash distributions:
2004
2003
$43.4 M
$27.5 M
$30.2 M
$29.1 M
USM 2005 Outlook
(Updated 11/10/05)
• Net retail customer adds
400,000 to 425,000
• Service revenues
Approx. $2.8 B
• Dep, amort & accretion
$530 M
• Operating income
$180 to $220 M
• CAPX
$575 to $595 M
Reconciliation of Additional Disclosures
Range of Amounts Anticipated
Qtr. ended 9/30/05
Operating income
Add: Dept./Amort/Accretion
Operating Cash Flow
Qtr. ended 9/30/04 (restated)
Operating income
Add: Depr./Amort/Accretion
Operating Cash Flow
$ 60 - 70 M
$123 - 129 M
$183 - 199 M
$ 46 - 56 M
$ 124 - 130 M
$ 170 - 186 M
(1) Operating Cash Flow as used above represents operating income before depreciation, amortization and accretion, and excludes loss on impairment of
intangible assets, and (gain) loss on assets held for sale. Operating Cash Flow is not presented as an alternative measure of operating results or cash
flows from operating activities as determined in accordance with accounting principles generally accepted in the United States of America. Management
uses Operating Cash Flow to evaluate the operating performance of its business, and it is a measure of performance used by some investors, security
analysts and others to make informed investment decisions. Operating Cash Flow is used as an analytical indicator of income generated to service debt
and fund capital expenditures. In addition, multiples of current or projected Operating Cash Flow are used to estimate current or prospective enterprise
value. Operating Cash Flow does not give effect to cash used for debt service requirements, and thus does not reflect funds available for investment or
other discretionary uses. Operating Cash Flow as presented herein may not be comparable to similarly titled measures reported by other companies.
Any guidance that is not consistent with the above should not be relied upon. The foregoing guidance represents the views of management as of the
dates indicated and should not be assumed to be accurate as of any date other than such date. TDS undertakes no legal duty to update such
information whether as a result of new information, future events or otherwise.
USM: Excellent Prospects
• Proven strategy
• Financially strong
• Extensive network and distribution
• Terrific people; dynamic organization
• Positive momentum
Chicago White Sox
2005 World Champions