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Telephone and Data Systems, Inc. (TDS) Q1 2021 Earnings Call Transcript

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TDS earnings call for the period ending March 31, 2021.

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Telephone and Data Systems, Inc. (TDS -0.50%)
Q1 2021 Earnings Call
May 7, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the TDS and UScellular First Quarter 2021 Conference Call. [Operator Instructions]

It is now my pleasure to turn the call over to your speaker today, Ms. Jane McCahon. Please go ahead.

Jane W. McCahon -- Senior Vice President-Corporate Relations and Corporate Secretary

Thank you, Eugrene, 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 UScellular website. With me today and offering prepared comments are from TDS, Pete Sereda, Executive Vice President and Chief Financial Officer; from UScellular, LT Therivel, President and Chief Executive Officer; Doug Chambers, Executive Vice President and Chief Financial Officer, and from TDS Telecom Vicki Villacrez, 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 those websites for slides referred to on this call, including non-GAAP reconciliations. We provide guidance for both adjusted operating income before depreciation and amortization for 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 Form 8-K, including the press releases and Form 10-Q yesterday.

As shown on Slide 2, the information set forth in the presentation and discussed during this call contains statements about expected future results, 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 versions included in our SEC filings.

In terms of our upcoming IR schedule, Slide 3, we're doing the J.P. Morgan Virtual Non-Deal Roadshow on May 11th and on June 16th we are attending a Virtual Investor Corporate Access Event with the New York Stock Exchange. And as always, our open-door policy remains, an open phone or open video policy, so please reach out to us, if you're interested in taking it up.

And I will now turn the call over to Pete Sereda. Pete?

Peter L. Sereda -- Executive Vice President and Chief Financial Officer

Thanks, Jane, and good morning.

Before speaking about the balance sheet and our financing strategies, I want to make you aware about change causing opportunities [Technical Issues] TDS Telecom [Technical Issues] will now be presented in the Cellular segment and the Wireline and Cable segments for [Technical Issues]

Reported. It will be 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 deal better depicts our progress and success in leveraging a single cost base to become a pre-eminent [Technical Issues]

Jane W. McCahon -- Senior Vice President-Corporate Relations and Corporate Secretary

Operator. We see...

Peter L. Sereda -- Executive Vice President and Chief Financial Officer

The change in segments... I'm sorry, The change in... Yeah. So you still there?

Jane W. McCahon -- Senior Vice President-Corporate Relations and Corporate Secretary

Yeah. You cut out for a minute.

Peter L. Sereda -- Executive Vice President and Chief Financial Officer

Okay. The combined view better depicts our progress and success, and success in leveraging a single cost base to become the pre-eminent 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 have been confirmed --- in 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 UScellular are taking action to lower interest expense, given the favorable market environment. In April TDS and UScellular 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 UScellular 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.

UScellular and TDS Telecom are currently both in investment cycles. With UScellular 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. TDS continues to return value to its shareholders primarily through dividends, both TDS and UScellular each opportunistically purchased a small amount of their shares in the quarter. TDS purchased $3 million worth and UScellular purchased $2 million worth of shares. In sum, we are in a financially solid position to take advantage of growth opportunities in each of our businesses.

I will now turn the call over to LT.

Laurent C. Therivel -- President and Chief Executive Officer

Thanks, Pete. Good morning, everyone. Flip to slide 6, our strategic imperatives are simple. It's going 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 of the first quarter. I'm going to provide a few thoughts on strategic priorities. First, I think on previous calls that one of our areas of opportunity is to enter into strategic partnerships, better leverage the value of our assets and 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, a regionalized approach to drive market share, plans for our business and Government and Prepaid segments. We have full steam on even, I'm pleased with our progress. You see that year-over-year improvement in gross additions and improvements in churn of our postpaid and prepaid. I'm also excited for the next evolution of our brand journey, our new tag line, America's locally grown wireless. UScellular has always been known for its outstanding network, branding highlights 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.

We're about competition, the competitive intensity in 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 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 addition, network performance continues to be a hallmark of our strategy. We're continuing our network modernization program and our multi-year 5G deployment. We can deploy 5G over each layer of spectrum, low, mid and millimeter wave. Our initial deployment for coverage is on cleaning low band spectrum. We have 5G available to some degree in 18 states today. We were largely satisfied with our C-Band purchases when combined with our CBRS Holdings, we now have mid-band spectrum in nearly all of our operating footprint. Also we deployed millimeter wave spectrum in order to offer fixed wireless access in three test markets. Pilot launch in those markets is expected to occur in the third quarter of this year. We will formalize and communicate our plans when the results become available.

We're going to be optimistic on the performance capabilities in millimeter wave spectrum. We recently performed additional millimeter wave spectrum testing, base station and radio enhancement and we achieved a line of sight propagation distances of seven kilometers with average speeds approaching one Gigabit per second. This exceeds our results from last year where we achieved a distance of five kilometers with average speeds of 100 Megabits per second. One thing I just want to say we've got talent and we're convinced than ever that attracting and retaining talent is a significant differentiator. This past year stressed everyone's approach to people, but I'm really pleased with how UScellular has responded. I do believe that the drivers of talent of yesterday aren't the same as the drivers of tomorrow. Pay and benefits will continue to be important. We're going to need to think even harder about work flexibility, a constant learning environment and a invisible focus on diversity, equity and inclusion.

We're nearly complete with a comprehensive strategy to help our team move to a more matrixed work environment, splitting time between home and the office. Certain associates have been working from home, will start returning to the office in June on a volunteer basis. They will be returning to a more flexible and smart environment. I expect this will help us increase engagement. I also think it's going to help us manage costs. On the diversity front, we were recently ranked 75th, well above all of our peers by Forbes, as one of America's Best Employers for diversity in 2021. This award many others like it provide us brand recognition as we compete to attract and retain the very best talent.

Now I'm going to turn it over to Doug. And he is going to cover the details of the quarter. Doug?

Douglas W. Chambers -- Executive Vice President, Chief Financial Officer and Treasurer

Thanks LT. Good morning. As LT mentioned, we're off to a good start this year. Let's start with the review of customer results starting on slide 7. Postpaid handset gross additions increased due to higher switching 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, it was bolstered this year by stimulus payments. Our ability to track switchers increased year-over-year due primarily to the success of our build requirements messaging and make promotional offers. We saw connected device gross additions decrease by 3,000 year-over-year. This was driven by lower gross additions of Internet products such as hotspots and routers compared to the prior year when we experienced an increase in demand due to COVID-19. The decline in hotspots and relative sales was partially offset by an increase in connected watch gross additions.

Wrapping up this slide, total smartphone connections increased by 13,000 during the quarter and a 56,000 over the course of the past 12 months. That helps to drive more service revenue given that smartphone ARPU is by $20 higher than feature phone ARPU. Next, I want to comment on the postpaid churn rate shown on slide 8. Currently churn on both handsets and connected devices continues to run at low levels. Postpaid handset churn depicted by the blue bars was 0.92% down from 0.95% a year ago. This was due to lower involuntary churn, which continues to run lower year-over-year as a result of having acquired customers and better credit mix and improved customer payment behavior. Total postpaid churn combining handsets and connected devices was 1.12% in the first quarter of 2021 also, lower than a year ago.

Now let's turn to the financial results on slide 9. Total operating revenues for the first quarter were $1.023 billion, an increase of $60 million or 6% year-over-year. Retail service revenues increased by $40 million to $685 million, the increase is primarily due to a higher average revenue per user, which I will discuss in a moment as well as an increase in average postpaid subscribers. Inbound roaming revenue was $28 million that was a decrease of $9 million year-over-year driven by the decrease in data volume. Whatever factors contributed to this data volume decrease is the merger of Sprint and T-Mobile, and the migration of Sprint roaming traffic to T-Mobile's network. Other service revenues were $58 million, an increase of $4 million year-over-year, including a 9% increase in tower rental revenues. Finally, equipment sales revenues increased by $51 million year-over-year due to an increase in units sold, an increase in sales of higher-priced units as well as an increase in accessory sales as a result of higher volume.

Now a few more comments on postpaid revenue shown on slide 10. Average revenue per user or connection was $87.65 for the first quarter, up $0.42 or approximately 1% year-over-year. On a per account basis average revenue grew by $2.33 or 2% year-over-year. The increases were driven primarily by an increase in regulatory recovery revenues, feasible plan and product offering mix and an increase in device protection revenues.

Turning to slide 11 as we continue our multi-year network modernization and 5G rollout, control of our towers remains very important. By owning our towers we ensure we maintain the operational flexibility to add new equipment, we made other changes to our cell sites without incurring additional costs which is very important, particularly given our current technology evolution

As you can see on the slide with the assistance of our third-party marketing. We have seen a steady growth in tower rental revenues. As I mentioned first quarter tower rental revenues increased by 9% year-over-year. As we told you earlier New Master Lease Agreement we signed with DISH Wireless and we will continue to focus on growing revenues from these strategic assets.

Moving to Slide 12. I want to comment on adjusted operating income before depreciation, amortization and accretion and gains and losses. To keep things simple, I'll refer to this measure as adjusted operating income. As shown at the bottom of the slide, adjusted operating income was $258 million, an increase of 12% year-over-year. As I commented earlier, total operating revenues were $1.023 billion, a 6% increase year-over-year. Total cash expenses were $765 million, increasing $33 million or 5% year-over-year. Total system operations expense increased 3% year-over-year. Excluding roaming expense, system operations expense increased by 2% due to higher service costs.

Roaming expense increased $1 million or 4% year-over-year resulting from an 80% increase in off-net data volume, that was largely offset by a decrease in rates. Cost of equipment sold increased $58 million or 26% year-over-year due to an increase in units sold, an increase in sales of higher-priced smartphones, as well as higher accessory sales volume. Selling, general and administrative expenses decreased $30 million or 9% year-over-year, driven primarily by a decrease in bad debt expense. Bad debt expense decreased $26 million due to lower write-offs driven by fewer non-paying customers as a result of a better credit mix and improved customer payment behavior. We also recorded bad debt expense in the first quarter of 2020 related to the FCC's Keep Americans Connected Pledge, which contributed to the year-over-year decrease. In addition, advertising expense decreased year-over-year.

Turning to Slide 13. I'll touch on adjusted EBITDA, which starts with adjusted operating income and incorporates the earnings from our equity method investments along with interest and dividend income. Adjusted EBITDA for the quarter was $302 million, an increase of $21 million or 8% year-over-year. Equity in earnings of unconsolidated entities decreased by $3 million or 7%.

Next, I want to cover our guidance for the full year 2021. For comparison, we're showing our 2020 actual results. Our guidance assumes that COVID-19 does not cause any significant incremental economic consequences that would negatively impact our business. Total service revenues, we have increased our midpoint by $25 million to a range of $3.05 billion to $3.15 billion. This increase is driven by an increase in our projections for build revenues and miscellaneous service revenues. We have raised the midpoint of our adjusted operating income and adjusted EBITDA ranges by $25 million by increasing low end of the ranges, with no change to the high end of the ranges resulting in new ranges of $850 million to $950 million, and $1.025 billion to $1.125 billion respectively.

In addition to the increase in our projections for the service revenues, the updated ranges incorporate favorability in bad debt, and selling and marketing expenses. This favorability is partially offset by expected increase in loss of equipment for the remainder of the year, compared to our earlier projections. For capital expenditures, we are maintaining our guidance range of $775 million to $875 million and we have provided a breakdown by major category.

I will now turn the call over to Vicki Villacrez. Vicki?

Vicki L. Villacrez -- Senior Vice President, Finance & Chief Financial Officer

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 speed to better serve our customers. On a combined basis we are able to offer 1 gigabit speed 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 continued 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 Plus 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 revenues grew 16% in total in the quarter. We are offering up to 1 Gigabit broadband speed in both our fiber and DOCSIS 3.1 market. 1 Gigabit product is an important tool that allows us to defend market and win over customers and new markets. In areas where we offer 1Gig service we are seeing 17% of our new customers taking the superior product.

Now turning to Slide 19, we have augmented our success, growing broadband with our TDS TV Plus offering. Our next generation video platform enhances the customer viewing experience, and as a bundle these products provided best-in-class customer service, and helped 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 Plus product. This rollout of this product currently covers about 60% of our total operation.

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, Idaho Coeur d'Alene, Idaho and Spokane, Washington, half the list of the countries hardest emerging housing market. This is according to the recent rating 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 markets is critical as it gives us the 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 multi-year 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 the plants are flagged 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 pre-registration rate which syndicate 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 markets. Incumbent wireline market 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 connection. Cable residential revenues grew 9% due to an 8% increase in broadband connections. Commercial revenues which continue to be impacted by C like decline, decreased 6% to $47 million in the quarter. And wholesale revenues decreased 3% to $45 million, primarily due to reductions in special access in the incumbent wireline market.

So let me sum up the combined financial results for the quarter 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 programing costs and information processing expenses, while we are making IT investments to simplify and consolidate our support system. 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 for the success base band 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 a very aggressive service address delivery schedule. I will continue to update you as we move through the year.

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 quarte.

And with that. Now I'll turn the call back over to you, Jane.

Jane W. McCahon -- Senior Vice President-Corporate Relations and Corporate Secretary

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

Questions and Answers:

Operator

[Operator Instruction] Your first question comes from Ric Prentiss from Raymond James. Your line is open.

Ric Prentiss -- Raymond James -- Analyst

Thanks, good morning everyone.

Jane W. McCahon -- Senior Vice President-Corporate Relations and Corporate Secretary

Good morning, Ric.

Ric Prentiss -- Raymond James -- Analyst

I want to take a look first at the guidances, at UScellular came in strong in the quarter as we think about run rating obviously increased the low end but kept the high end flat, I think you mentioned you're expecting maybe higher loss on equipment promotions. So as you think through that as part of service, all the 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 or maybe for the year.

Laurent C. Therivel -- President and Chief Executive Officer

Good morning, Ric. And so, yeah, with respect to the run rate of our guidance and we mentioned in the call and the reasons we took it up with business revenue increased resulted from miscellaneous revenues as well as favourability, regulatory revenues, and rate plan mix. From a run rate perspective, selling and marketing expenses are a little bit back-end loaded toward the end of the year and we also have some peaks in operations expenses in the second and third quarter with heavy construction and maintenances and so the run rate is not quite uniform throughout the year, when we look at that. And I think we said the reasons for the, to take up with the guidance, the deployment. With respect to -- with increase in subscribers, we don't guide specifically subscribers, but we're certainly we've stated that we are very focused on growing market share as well as growing our [Indecipherable] install I think the answer to that question is yes.

Ric Prentiss -- Raymond James -- Analyst

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 toward the high end of that guidance or why couldn't guidance go up. I assume there are some sales and marketing cost of service increases as you roll out more markets, but just wondering the trends on TDS Telecom.

Vicki L. Villacrez -- Senior Vice President, Finance & Chief Financial Officer

Yeah, thank you for that question. We did have a strong quarter, very pleased with our quarter and where we're headed and it's certainly the strong start, has given us some headroom on the year. As you know, we're ramping up our construction in our fiber deployment both within our incumbent markets and in new expansion markets and that's going to ramp up through the year. And so, while I expect new gross revenue to come in for the year, we are also going to be experiencing higher cost with the launches of these new markets. Every day we're turning up new neighborhoods and as these come into the -- there we have the upfront costs associated with that. But we're well on track for hitting and staying within our range of guidance at this point.

Ric Prentiss -- Raymond James -- Analyst

Thanks and my follow on last question would be supply chain. On the UScellular side, any issues we've heard other -- on their conference call side 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 the supply chain standpoint from UScellular, handsets and network side and from TDS Telecom, it does seem like given the 150,000 service addresses added this year might be tough, just kind of talk to that.

Laurent C. Therivel -- President and Chief Executive Officer

Hey, Ric. It's LT. Two drivers on the supply chain side that you mentioned, I think they're the two big ones that we're paying attention to. LG is the first. We are well prepared for that. Mostly LG -- most of the LG sales are in the prepaid side of our business and we've got fairly robust, wide ecosystem. So that does not concern me. I think we're well prepared, and we can serve the demand that's out there.

Chipset side of the house, I pay a lot of attention to. Thus far I'm not seeing effects on our business. Thus far, there are impacts. We think we can manage it. But that one I'm paying a lot more attention to. I'm not sure if I would use the word skittish, but concerned certainly. So that one we're kind of looking more closely at. Thus far no impact but that's not to say that we could, if we start to see that ramp up.

Vicki, you want to answer the telecom infrastructure stuff?

Vicki L. Villacrez -- Senior Vice President, Finance & Chief Financial Officer

Yeah, sure. You know 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 diversified our suppliers where it made sense, and having no choices helped, 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 need much farther in advance.

And so some of the capital spend starts to go toward 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. We're thinking about pads, connectors, drives, O1Ts, 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 times.

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 a 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.

Ric Prentiss -- Raymond James -- Analyst

Thanks. Stay well.

Vicki L. Villacrez -- Senior Vice President, Finance & Chief Financial Officer

Thank you.

Operator

Your next question comes from Phil Cusick from JP Morgan. Your line is open.

Phil Cusick -- JPMorgan Chase & Co. -- Analyst

Hi guys. Thank you. A couple of if I can. First LT, you're talking about the market go into promotions on handset discounts. I heard you that churn remains low and in voluntary in particular is low. Are you seeing a voluntary churn ticking up at all as the world sort of reopens? And any shift in where customers are going when they leave?

Laurent C. Therivel -- President and Chief Executive Officer

Slight up-ticks in voluntary churn. But I think completely in line with what you would expect when you start to see a little bit of a larger switcher pool. The answer to the second question is, no, there is not a big shift in where they're going. So the -- we don't publish it, but our win share and our loss share and our core ratios to different carriers has remained generally constant. It's not a big shift there. No.

Phil Cusick -- JPMorgan Chase & Co. -- Analyst

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

Laurent C. Therivel -- President and Chief Executive Officer

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

Phil Cusick -- JPMorgan Chase & Co. -- Analyst

Okay, thank you. And then, Vicki under the category 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 leg footprint?

Vicki L. Villacrez -- Senior Vice President, Finance & Chief Financial Officer

Yeah. So great question. We are very focused on scaling up our operations, doubling our fiber, the number of constructed fiber applications

Over the last year, I think definitely shows that the organization is scaling up, and last year we more than doubled the prior year. So we are very much focused on how can we go faster, how can we accelerate these builds and it's a -- it's a real partnership quite frankly with the city, the cities that we're building in, the support that we need from the city officials, the partnership with our suppliers and our construction contractors, and then our own teams. And we're learning and we take those learnings and we put them into the next build. And of course there's always going to be challenges as we run into different obstacles pticals throughout the way, but we're learning and pushing our way through though.

In terms of --- good question around the ILEC competitors. We're 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 now focus on the point fiber. We've been doing this for a long time. We fibered up a third of our own footprints are overbuilt in our own markets and we learned from that and I think we're just continuing to accelerate our program and we got a headstart.

Phil Cusick -- JPMorgan Chase & Co. -- Analyst

Thanks, Vicki.

Operator

Your next question comes from Simon Flannery from Morgan Stanley. Your line is open.

Simon Flannery -- Morgan Stanley -- Analyst

Great, thank you very much. Good morning. LT you talked little bit about some of the new initiatives on to focus on growth. Give us a sense of where we are in the rollout of these and the impact? When do you think we'll see the full benefits of these programs coming through in the results, obviously some good progress this quarter, but do you think we will see more as we go through the year? And maybe any thoughts on just what's driving the total industry adds that we've seen here? I think you mentioned stimulus checks on one level, but any other thoughts would be great.

And then, Vicki, perhaps some thoughts on the infrastructure build and broadband funding from municipalities and others, how you think about is there opportunity for TDS there, any thoughts would be great. Thank you.

Laurent C. Therivel -- President and Chief Executive Officer

Good morning. Simon.

Simon Flannery -- Morgan Stanley -- Analyst

Good morning.

Laurent C. Therivel -- President and Chief Executive Officer

In terms of growth drivers, I would point out four and let me just kind of give you a bit of an update on each one of these. So for the ones I talked about on previous calls, was regionalization. We are taking a regional approach. We've started doing that. So we started trialing different promotional activity in different regions. Frankly, think of it is doing detesting on a regional basis, and it's working. We think we're able to pretty quickly hone down on which promotions resonate, which ones don't, which drive traffic.

And so from a regional perspective, I think that one is working nicely. It's where I would expect it to be. And you can see some of the results in our postpaid, what we're doing for postpaid perspective. Talking about prepaid. You're already starting to see some of the results of the greater focus on prepaid in our results. In this quarter and I expect that's going to pick up the rest of the year. The initial focus was around lifecycle management I talked about initially we would reach out to our prepaid customers pretty irregular in the sense that we send them a note when they join the network, we send them a note to read out of eligibility, we send them a note when they are no longer a customer. We're starting to become much more active around that and reaching out to our prepaid customers more often gives us the opportunity to bring down churn, you see that in the results. It gives us the opportunity to expand ARPU. But it also allows you to do and you have churn that goes down, you have more expanded ARPU, you can get more aggressive from an acquisition perspective. So I'm comfortable with where we're at from a prepaid perspective. Business and government are still work in progress. I'm comfortable with what we've put in place but this is no longer [Indecipherable] so we hired Tim, from -- both from sprint. I think she's put a lot of really good initiatives in place around expanding channels so we started to get a bit more aggressive on the indirect side, partnering with value-added resellers, partnering the master agents. These things take time, but I expect that that's going to be picking up and you probably start to see results late this year, early next in terms of of seeing a bit more increase in activity from the business and government sector, has a longer lead time and I would expect it to.

And the final one that I talked about is increase in partnerships. So you've already seen the impact of us taking a more aggressive approach to partnerships with DISH in LA. I mean I can't get into the details on the contract itself, but just to kind of give you an idea about what that means. Okay, well that's nice LT, what does it mean to be more aggressive from a partnership perspective. You know, we hired Austin Summerford to come and run that portfolio as well as other things roaming business development strategy. One of the things that we've looked at is how can we become a more attractive partner to people that are interested in getting access to our towers. The secret of our colocation rate, it's been lower than the industry average, and we've got to fix that. While those things that you can do to be fairly tactical to make yourself more attractive, you can bring your cycle time down processing applications. We've done that cycle times are down considerably over the last six months.

The other thing that we did, if you take a look at some of the policies in our towers. So in the past, I mean we would reserve pretty significant amount of RAD center space or overall tower space for potential network expansion. We're still reserving it, we brought that down a little bit, so that we can expand the amount of capacity we have available to partners. The other thing we did is we said, look, we've got assets at those towers in the form of generators and shelters and backhaul and we're willing to share that with our partners if the economics makes sense. So we've taken those actions. I think the DISH deal is the first example of those actions bearing fruit and I expect to see more. So hopefully that gives you some flavor about how we're doing from a growth perspective and I'm encouraged and I expect to see those efforts continue to bear fruit certainly throughout the rest of this year and particular going into next. Vic, I'm going to hand it over to you for the other question.

Vicki L. Villacrez -- Senior Vice President, Finance & Chief Financial Officer

Sure. On the infrastructure proposal, we're watching this as it develops. We've seen summary information, but I think the details are still forthcoming. I think critics are taking aimed at different elements but I expect the broadband portion, I expect the broadband portions likely survive the process. The total spending where it ends up maybe scale back a bit. I'm not sure but I think it's too early right now to speculate on how specifically the builds going to drive further growth at TDS Telecom, but we're definitely watching its development. But standing back just from additional funding from government programs, we have a long history of participating and right now, we're currently active as you know on the FCC's A-CAM program and without that level of support, we would not be able to make the economics work to build with the very remote areas that we're building right now. And as we're in the fifth year of that program, we build out to half of the 160,000 location obligation under that program and we have more work to do under that. But we're also in active discussions with the FCC and others on extending the A-CAM program because if you recall the -- the start of that program was about 25 Megabits speed and through the pandemic and acceleration of broadband adoption and growth that we're seeing and the adoption of higher speed, we're talking about maybe extending that program to build out to even higher speeds longer term. So, and we're also participating in state broadband programs, the FCC's lifeline broadband program EVP. And so, and also the American Rescue Plan. We're evaluating participation in that. So lots of opportunities that are in play and we can update you as we move forward.

Simon Flannery -- Morgan Stanley -- Analyst

Great, thank you.

Operator

Your next question comes from Michael Rollins from Citi. Your line is open.

Michael Rollins -- Citi -- Analyst

Hi, good morning. I'm going to go back to the comments LT you're making about partnerships and just curious if you're also considering alternative strategic relationships with the industry. If you look at 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 C. Therivel -- President and Chief Executive Officer

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 and 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, it'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 answer -- the simple answer is yes. 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.

Michael Rollins -- Citi -- Analyst

Thanks.

Operator

Your next question comes from Sergey Dluzhevskiy from GAMCO Investors, your line is open.

Sergey Dluzhevskiy -- GAMCO Investors -- Analyst

Good morning, guys. Thank you for taking the questions. My first question is for LT. Obviously, it's great to see a 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 non-traditional players that you're talking to?

Laurent C. Therivel -- President and Chief Executive Officer

Yeah, Sergey. So I mean how the deal came about. I mean obviously fairly limited on what I can share. But let me 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, T-Mobile. In the tower business obviously i have a different set of competitors. And so I think about our value proposition, vis-a-vis those competitors a little bit different. 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 modulator I'm also a customer [Indecipherable] and I understand what my customers want and we are trying to take a fairly customer-friendly approach but 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. And I mean we're fairly actively marketing those assets, we have a partnership with the marketing firm to help us with that. They do a pretty good job beating the bushes for potential customers and I expect those colocation rates to go up over time dollars to drop right to the bottom line in the form of positive cash flow. So, I'm optimistic about that business. We're going to keep pushing.

Sergey Dluzhevskiy -- GAMCO Investors -- Analyst

Great. And on the related question, [Indecipherable] for the company TDS Telecom has meaningfully improved its growth profile through fiber builds and the tower business may be running it more like a tower company potentially becoming similar growth vehicle for U.S. seller potential enhancing revenue and profitability profile and helping increase valuation multiple [Indecipherable].

Laurent C. Therivel -- President and Chief Executive Officer

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

Sergey Dluzhevskiy -- GAMCO Investors -- Analyst

Great, thank you. My next question is for Pete. So there were some buybacks in the quarter. Minor buybacks at both UScellular and TDS but if one marks UScellular take to market, TDS Telecom which is transforming into growing fiber and cable broadband business is trading still, has 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 capital allocation objectives.

Peter L. Sereda -- Executive Vice President and Chief Financial Officer

Good morning, Sergey. Thanks for the question. We've talked about in the past the balance that we're trying to maintain between having the dry powder to invest in all the things that Vicki and LT have been talking about today and returning cash to our shareholders through both the dividend, don't forget about the dividend and share repurchase, and we saw this this quarter that we went out and we raised some capital in a rating agency friendly way. I'm talking about those perpetual preferred securities. So the rating is very important to TDS. It's part of our long-term sustainability of the enterprise. And so again, it's just a balance that we have to maintain and as we ramp up the funnel that the -- the fiber funnel that Vicki has discussed, we have to make sure that we've got the funds to make those investments, all the significant investments that we've been talking about here. So we're going to continue to look at that balance and it probably will never satisfy you, but we'll do as much as we can maintaining that balance.

Sergey Dluzhevskiy -- GAMCO Investors -- Analyst

Great. And my last question is for Vicki, kind of once again a 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.

Douglas W. Chambers -- Executive Vice President, Chief Financial Officer and Treasurer

You know right now competitive response has been minimal levels right now, Sergey, and I'm watching for a number of things. One, it's response from the cable company. As we go into these new markets with fiber expansion, quite frankly, we expect to share the market with the incumbent cable company, what if they've upgraded their network we're both able to offer one gig speeds and and we're even nailing down the road to offer a multi-gig speed. The ILEC or the incumbent Telephone Company for the most part we've not seen any significant competitive response from them. Now I know some companies are now talking about fiber deployment plans. But in these markets, we get in there, we finish our construction and and with our pre-registration sign ups, we have -- we get significant market share early in the first, the first 12 months. So that strategy is working very well. The third thing I -- we watch for certainly is other fiber overbuild, over builders whether they're coming into the same market or they're beating us to a new markets that we have our eyes set on in, and right now, that's I think that's the biggest focus. There is a lot of opportunity in the U.S. Our funnel, our fiber funnel is wide. And as we're looking at our most attractive markets, I think getting getting to market first is the key.

Sergey Dluzhevskiy -- GAMCO Investors -- Analyst

Great, thank you.

Operator

There is no further question at this time, I would now like to turn the call over back to Jane for closing remarks.

Jane W. McCahon -- Senior Vice President-Corporate Relations and Corporate Secretary

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

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Jane W. McCahon -- Senior Vice President-Corporate Relations and Corporate Secretary

Peter L. Sereda -- Executive Vice President and Chief Financial Officer

Laurent C. Therivel -- President and Chief Executive Officer

Douglas W. Chambers -- Executive Vice President, Chief Financial Officer and Treasurer

Vicki L. Villacrez -- Senior Vice President, Finance & Chief Financial Officer

Ric Prentiss -- Raymond James -- Analyst

Phil Cusick -- JPMorgan Chase & Co. -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Michael Rollins -- Citi -- Analyst

Sergey Dluzhevskiy -- GAMCO Investors -- Analyst

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