Telephone and Data Systems (TDS) Q2 2025 Earnings Call Transcript

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Date

August 11, 2025, at 10 a.m. ET

Call participants

• President and Chief Executive Officer — Walter Carlson
• Executive Vice President and Chief Financial Officer — Vicki Villacrez
• Interim President and Chief Executive Officer, Array Digital Infrastructure — Doug Chambers
• Vice President of Finance and Chief Financial Officer, TDS Telecom — Chris Bostfield

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Takeaways

• U.S. Cellular wireless divestiture-- Sale of the U.S. Cellular Wireless business and certain spectrum assets to T-Mobile (NASDAQ:TMUS) for $4.3 billion closed on August 1, 2025, with $1.7 billion in debt assumed by T-Mobile as part of the transaction, and $364 million remaining on the Array balance sheet following the close of the T-Mobile transaction.
• Special dividend-- Array board declared a $23 per share special dividend payable on August 19; Telephone and Data Systems (TDS -0.03%) will receive approximately $1.63 billion through its pro-rata share of the special dividend.
• Planned debt reduction-- Telephone and Data Systems intends to redeem approximately $1.1 billion in debt with a weighted average cost of 7.5%, projected to yield approximately $80 million in annual interest savings, and lower the average cost of debt to just over 6%, including the preferred.
• Credit upgrade-- S&P raised the credit rating of Telephone and Data Systems to BBB- from BB on August 1 and removed CreditWatch designation.
• Spectrum monetization progress-- Agreements reached to monetize 70% of Array's total spectrum holdings as of Q2 2025; pending AT&T (NYSE:T) and Verizon Communications (NYSE:VZ) transactions are expected to generate $2 billion in additional gross proceeds, with closings anticipated in 2025 and 2026, respectively, subject to regulatory approvals.
• Array tower portfolio-- Post-divestiture, Array owns approximately 4,400 towers as of August 1, 2025, with a new 15-year master license agreement (MLA) with T-Mobile, commencing August 1, 2025, and committing to 2,015 colocations, extending terms on 600 existing colocations, plus 1,800 interim leases for thirty months.
• Reported tower tenancy rate change-- With the loss of U.S. Cellular as a legacy tenant and addition of T-Mobile under the MLA, reported tenancy rate at Array will drop from 1.57 at June 30, 2025, to approximately 1.0 at August 1, excluding interim T-Mobile sites.
• Equity method investment distributions-- Distributions from noncontrolling investment interests increased from $58 million to $77 million between 2024 and 2025, with $23 million attributed to a nonrecurring Verizon Wireless partnership distribution related to the tower transaction that closed in December 2024.
• Wind-down costs impact-- Management projects additional wind-down expenses into 2026, expected to negatively impact profitability and adjusted EBITDA (non-GAAP) during the transition to a tower-focused business for the remainder of 2025 and into 2026.
• Fiber build progress and targets-- TDS Telecom delivered 27,000 new fiber service addresses in Q2 2025 and remains on track for 150,000 new fiber addresses in 2025; ended Q2 2025 with 968,000 marketable fiber service addresses, targeting 1.8 million marketable fiber service addresses as a long-term goal.
• Fiber penetration metrics-- Total fiber connections increased 19% year over year in Q2 2025; 75% of the footprint offered speeds of one gig or higher as of Q2 2025, with a long-term goal to reduce copper below 5%.
• Updated guidance for TDS Telecom-- Revenue is projected in the $1.03 billion-$1.05 billion range for 2025, adjusted EBITDA is expected to be $320 million-$350 million for 2025, and adjusted OIBDA is expected to be $310 million-$340 million for 2025; CapEx focus remains over 80% on fiber builds for the full year 2025.
• MVNO launch-- TDS Mobile MVNO product launched company-wide in the second quarter, after test-market deployments starting in 2024.
• Penetration targets and pricing model-- TDS Telecom targets 25%-30% penetration in new fiber markets by month 12 and 40% by year five in expansion markets, with 65%-75% penetration expected in EACAM-eligible areas, as discussed on the Q2 2025 earnings call; initial gig product entry-level pricing commonly steps up by $20 after two years.
• Capital allocation strategy-- Planned allocation of proceeds across incremental fiber investment, potential M&A centered on fiber assets with synergy potential, and enhanced shareholder returns, including establishment of a regular dividend at Array following completion of spectrum transactions.

Summary

The transformation of Telephone and Data Systems from a diversified telecom company to a focused tower and fiber business is now fully underway, following the completion of the $4.3 billion U.S. Cellular Wireless sale to T-Mobile and the August 1 declaration of a $23 per share special dividend. Management anticipates unlocking an additional $2 billion from pending spectrum transactions with AT&T and Verizon, expected to close in 2025 and 2026, with strategic clarity on fiber network expansion and tower portfolio optimization reinforced throughout the call. Credit upgrades and sizable forthcoming debt reduction combine to position the company with markedly greater financial flexibility, while updated fiber deployment and penetration milestones signal tangible operational progress in TDS Telecom. Affirmed guidance revisions account for recent divestitures and ongoing legacy revenue declines, as management commits to transparency with future reporting on tower business metrics and fiber cohort penetration analytics.

• Chris Bostfield noted, "We expect 65% to 75% penetration in [EACAM-eligible] areas," highlighting significant anticipated market share capture in these regions.
• The company confirmed that post-divestiture, "Array's reported tenancy rate will decline from 1.57 at June 30, 2025, to approximately 1.0 at August 1, 2025," specifically excluding interim T-Mobile sites from the calculation.
• The establishment of new management in TDS Telecom, with Ken Dixon joining as CEO, marks an explicit strategic shift toward fiber-led growth and portfolio optimization.

Industry glossary

• Colocation: Arrangement allowing multiple wireless carriers to install their antennas and equipment on a shared tower.
• Master license agreement (MLA): Long-term contract with a wireless carrier specifying terms and volume commitments for access to tower infrastructure.
• EACAM: Federal program supporting fiber broadband buildouts in areas lacking gig-capable competition; stands for Enhanced Alternative Connect America Model.
• ILEC: Incumbent Local Exchange Carrier, referring to legacy telecommunications providers in specific geographic territories.
• MVNO: Mobile Virtual Network Operator; brand that resells wireless services under its own name using another carrier’s infrastructure.

Full Conference Call Transcript

Walter Carlson, President and Chief Executive Officer; Vicki Villacrez, Executive Vice President and Chief Financial Officer; from Array Digital Infrastructure, Doug Chambers, Interim President and CEO; from TDS Telecom, Chris Bostfield, Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the Telephone and Data Systems, Inc. and Array Investor Relations website. Please see the websites for slides referred to on this call, including non-GAAP reconciliations. Telephone and Data Systems, Inc. and Array filed their SEC Forms 8-Ks, including the press releases and our 10-Qs earlier this morning.

As shown on Slide two, the information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the safe harbor paragraphs in our press releases and the extended version included in our SEC filings. And with that, I will now turn the call over to Walter Carlson. Walter?

Walter Carlson: Thank you, Colleen, and good morning, everyone. We'll start on Slide three and review the progress that we've made on our priorities for 2025. As we announced on August 1, we are very pleased that we closed on the sale of U.S. Cellular Wireless business and certain spectrum assets to T-Mobile. The teams at U.S. Cellular and Telephone and Data Systems, Inc. worked tirelessly over the last several years to negotiate and complete a $4.3 billion transaction. I also want to thank T-Mobile for their partnership in this transaction and throughout the integration process. This transaction unlocks significant value for shareholders and strengthens the balance sheet at both Array and Telephone and Data Systems, Inc.

As Vicki will discuss shortly, equally important completion of this sale will enable us to focus on our tower and fiber businesses where we believe we are well-positioned to win. Looking ahead, I am excited for a new chapter in the company's history. Going forward, we like the towers business and are operating under a new name, Array Digital Infrastructure Inc. We believe Array has many opportunities. Array holds valuable assets, towers, spectrum, and equity method investment interests, all of which are the product of significant work and investment over the prior forty years. Our towers business at Array has an outstanding management team led by Doug Chambers.

We believe Array is uniquely and attractively positioned, and we look forward to running a tower company. With approximately 4,400 towers, Array has the strength and stability of the new master license agreement with T-Mobile. And with increasing demand for data and communication services in the United States, we believe we have a great opportunity to grow colocations and margins over time. Turning to TDS Telecom, in June, we were pleased to announce Ken Dixon had joined us as the new CEO of TDS Telecom to lead that business going forward. Ken comes to us with decades of telecom and fiber experience.

Ken has hit the ground running, and his deep knowledge and expertise in sales, marketing, customer satisfaction, and operations are already making a difference. I'm looking forward to you hearing from Ken on our next earnings call. Chris Botfeld will report to you today on the progress that TDS Telecom made on our fiber business during the second quarter. Turning to the fourth item on our set of objectives, throughout the year, we have made significant progress in strengthening our capital structure. This increases our financial flexibility and positions us to take advantage of opportunities as they present themselves. Vicki will highlight those accomplishments shortly.

And lastly, with all of the changes in the organization, we remain focused on our culture. And Telephone and Data Systems, Inc.'s culture is one of its greatest strengths. I want to thank all of the teams across the Telephone and Data Systems, Inc. enterprise for their contributions and these accomplishments, and I'm excited about what lies ahead. I will now turn the call over to Vicki.

Vicki Villacrez: Okay. Good morning, everyone. As you heard from Walter, closing the T-Mobile transaction earlier this month was a major step to unlock shareholder value and strengthen our businesses focusing on where we can win. We have taken a number of steps, which will provide us the financial strength to be able to grow our businesses. To recap, $1.7 billion in debt was assumed by T-Mobile in an exchange offer, leaving $364 million on the Array balance sheet. We extended the revolvers for both Telephone and Data Systems, Inc. and Array and signed amendments to several term loans to provide post-transaction liquidity as we prepare to put in place a more permanent capital structure.

On August 1, the Array board of directors declared a special dividend of $23 per share that will be paid on August 19. Telephone and Data Systems, Inc. will receive its pro-rata share of the dividend or approximately $1.63 billion. Once the dividend is paid at Telephone and Data Systems, Inc., we plan to redeem approximately $1.1 billion in debt that carried a weighted average cost of 7.5%. These actions will result in approximately $80 million in annual interest savings and will reduce our total Telephone and Data Systems, Inc. average cost of debt to just over 6%, which includes the preferred. We plan to maintain the perpetual preferred series UU and series BV preferred stock.

They provide foundational capital for our fiber program, and we currently have no plans to redeem them. Briefly, in the past, we've shared the expected cash tax ranges related to the T-Mobile transaction. As a result of the new One Big Beautiful bill, Telephone and Data Systems, Inc. is expecting a benefit that can be used to offset the tax at the consolidated level, reducing the transaction tax estimate to $150 million. The sale of our wireless operations has simplified the Telephone and Data Systems, Inc. portfolio and increased our financial flexibility while allowing us to focus on our growing broadband and tower businesses.

In addition to returning significant value to shareholders, Telephone and Data Systems, Inc. has a long history of disciplined financial policy while maintaining a relatively conservative balance sheet. With a significant amount of our debt repaid, we will target a three times bank leverage ratio at Array, which translates into $700 million of debt on Array's balance sheet. We expect Telephone and Data Systems, Inc.'s leverage to remain below 1.5 times in the near term as we evaluate our next steps and strategic opportunities for both our fiber and tower businesses.

As we look forward, we anticipate Array to receive $2 billion of proceeds from the previously announced spectrum sale, with a portion of the proceeds expected to potentially come in later this year. Of course, these are both subject to regulatory and other customary approvals. In addition, we'll be working to opportunistically monetize the remaining spectrum at Array. On principle, we do not plan to hold excess cash on the balance sheet for too long without putting it to use. To that end, we anticipate Array to put in place a regular dividend once the Spectrum transactions have been completed.

Therefore, we are developing an allocation strategy across three main categories, which we intend to further refine and share with our investors going forward. First, fiber. We know we have significant opportunities to make incremental organic investments in fiber with attractive returns that exceed our cost of capital. We believe we have an immediate window of opportunity to pursue these investments that do not yet have a fiber provider. With Ken Dixon on board, we are working to size these investments. Second, M&A. We are currently evaluating this space to identify where it might make sense to accelerate growth at the right price, particularly for the fiber program. And third, shareholder returns.

Once we've quantified our growth opportunities, we will look for ways to increase reach to our shareholders. Before I turn it over to Doug for more detail, I wanted to highlight that on August 1, S&P raised Telephone and Data Systems, Inc.'s credit rating to triple B minus from double B and removed the ratings from CreditWatch. We are very pleased with this rating and believe it reflects our strong balance sheet, valuable assets, and growth outlook for our businesses going forward. I will now call turn the call over to Doug. Doug?

Doug Chambers: Thanks, Vicki. Good morning. I would like to start off by thanking the Board for placing its confidence in me to lead Array during this interim period. And I would also like to thank LT and the U.S. Cyber team that have guided us through the process through the successful close of the T-Mobile transaction. Slide six summarizes the proceeds received from the T-Mobile along with various transaction-related costs and other items that impacted our cash available for distribution. We are pleased to return these funds to shareholders through the special dividend previously mentioned by Vicki. Further, as we have discussed previously, the sale of our wireless operations to T-Mobile is a win for our customers and for our associates.

Our customers will have the enhanced connectivity with the combined networks of the two companies and access to lower prices and more features, and a significant number of our associates accepted positions with T-Mobile. We are very pleased that our customers and associates are in great hands as part of the T-Mobile family. Further, the sale of portions of our spectrum to T-Mobile, along with the pending spectrum sales to AT&T and Verizon, are wins for rural America, as this spectrum will be deployed to serve customers across our nation. And we look forward to opportunistically monetizing our remaining spectrum to ensure this spectrum can also be put to use to serve customers across America.

With that, I'm excited to discuss our business going forward, Array Digital Infrastructure. Slides seven and eight summarize the status of our efforts to opportunistically monetize our spectrum. As previously announced, we have reached agreements to monetize 70% of Array's total spectrum holdings, including the T-Mobile transaction and agreements with AT&T and Verizon. The AT&T and Verizon transactions will result in additional gross proceeds of $2 billion. We expect cash taxes on the AT&T and Verizon transactions of approximately $125 million and in the range of $200 million to $250 million, respectively. Further, we expect the AT&T and Verizon transactions to close in 2025 and 2026, respectively, subject to regulatory approval and other closing conditions.

Also, following the closing of each of the AT&T and Verizon transactions, we anticipate that the Array board will declare special dividends to distribute a substantial portion of the resulting net proceeds. The large majority of the remaining spectrum is C-band spectrum. We believe these licenses are attractive beachfront spectrum for 5G, and there's an existing infrastructure ecosystem, so carriers are easily able to put the C-band spectrum to use. And although there are build-out requirements associated with this band, the first one does not apply until 2029, so there's plenty of time for us to monetize this spectrum. Turning to slide nine.

Following the close of the T-Mobile transactions and divestiture of our wireless operations, our going forward business has three components. The fifth largest U.S. Tower business with 4,400 owned towers, non-controlling investment interest, which primarily consists of investments in wireless operating companies managed by Verizon and AT&T, and the retained spectrum. Turning to slide 10. I would like to discuss the strategic priorities of Array to position the business for continued success. Two key priorities will be to close the pending Spectrum transaction with AT&T and Verizon and to continue to opportunistically monetize the remaining spectrum.

Focusing on the tower business, now that we are set up as an independent tower company, and have the strong team in place from our existing business, we have two key strategic priorities going forward. Brown lease optimization has been and remains a key priority as we seek to expand our long-term ownership, easement, and lease agreements with our ground lessors. The other key priority of the tower business is continued strong revenue growth, which we have been achieving through robust new colocations and will be further bolstered by the new T-Mobile master license agreement, or MLA, which commenced on August 1, upon the close of the larger transaction. Turning to Slide 11.

Implementation of the new MLA between T-Mobile and Array will be a significant near-term focus as T-Mobile has committed to 2,015 colocation sites for a period of fifteen years beginning August 1 and has also extended term on 600 existing colocations by fifteen years from the same August 1 date. Also effective August 1, T-Mobile will have interim leases at 1,800 sites for a period of thirty months, which they may cancel at their discretion during this period. We expect this MLA with T-Mobile to significantly strengthen our tower business with substantial increases in long-term revenue and profitability.

Turning to our tower operations and results on slide twelve and thirteen, third-party tower revenues increased by 12% and the number of third-party colocations increased by 6% year over year. One area that we believe will continue to drive momentum is our decision in 2024 to bring our sales function in-house. We have built strong sales leadership, have hired an outstanding sales team that we believe will position us well for future revenue growth. We also benefit from MLAs with all three major U.S. carriers, which provide for compelling pricing and ease of doing business with Array that benefit both Array and our large carrier tenants.

In addition, as we have discussed in the past, one-third of our towers have no competing tower structure within a two-mile radius. And we believe this attribute positions our tower portfolio well for future colocation growth. Going forward, upon divestiture of our wireless operations, Array will lose U.S. Cellular as a tenant on every owned power as reported historically in our tower segment and gain T-Mobile as the tenant on a significant amount of incremental towers subject to the MLA. As a result, Array's reported tenancy rate will decline from a reported amount of 1.57 at 06/30/2025 to approximately one point zero at August 1 by close of the T-Mobile transaction and commencement of the related MLA.

This one point o tenancy rate excludes T-Mobile interim power sites. Further, intercompany revenues allocated to the tower segment from U.S. Cellular's wireless business will be reduced to zero in future periods, and this will be partially offset by incremental revenues from the T-Mobile MLA. Shifting to our equity method investments, distributions from our noncontrolling investment interest increased from $58 million to $77 million in 2024 and 2025, respectively. Of this increase, approximately $23 million related to nonrecurring distributions from Verizon Wireless partnerships related to their tower transaction vertical bridge that closed in December 2024. As we have indicated previously, we are not providing guidance on Array's expected operational and financial results for 2025.

We expect to incur additional wind-down costs for the remainder of 2025 and into 2026 as the business transforms from primarily a wireless service provider to an independent tower company, and we expect these wind-down expenses to negatively impact profitability and adjusted EBITDA during this period. We expect to provide additional tower-related financial and operational metrics in 2025, which will represent our initial quarter reporting as an independent tower company. Regulatory approvals on the sale of the wireless operations occurred in the third quarter. Therefore, discontinued operations reporting will be applicable and presented in the third quarter filings. Lastly, the details of the T-Mobile transaction are discussed in the subsequent events footnote in our second quarter Form 10-Q.

I would like to convey my deepest appreciation and gratitude to all of the U.S. Cellular associates who have provided many years of dedicated service to carry out our mission of connecting our customers to what matters most. We would not be here today without your outstanding service, dedication, determination, and enthusiasm. U.S. Cellular was a special carrier with special people for many years. And we will all remember U.S. Cellular proudly and fondly. I would like to also express my thanks to the Array employees that are operating the tower business. They have worked extremely hard and have made our transition to an independent tower company a success.

These are exciting times, and I look forward to working with this talented team to continue to drive success in our tower business. I will now turn the call over to Chris Bothell.

Chris Bostfield: Thank you, Doug. Good morning, everyone. Turning to Slide 15. As Walter mentioned, Ken Dixon recently joined the telecom team as CEO, and the organization is energized and excited for what's ahead under his leadership. Turning to the quarter, we delivered 27,000 new fiber service addresses and remain confident in achieving our goal of 150,000 fiber addresses this year. We are pleased that EHM construction kicked off at the end of the first quarter and is now underway in states. During the second quarter, we began bringing EACAM customers online, an exciting milestone for the program. As a reminder, over the next several years, EACAM is expected to contribute approximately 300,000 additional addresses to our fiber footprint.

As our EACAM build continues to ramp over the second half of the year, we expect service address growth and fiber net adds to follow. In the quarter, we also generated 10,300 fiber net additions, leading to 19% growth in total fiber connections since last year. Lastly, we closed on the sale of our Colorado ILEC market on June 2 and recently announced the pending sale of our ILEC companies in Oklahoma. Although these transactions impact short-term results, they're a key part of our strategy to optimize our portfolio and exit copper markets where there is not an economic path to fiber. Turning to slide 16.

You can see our progress towards the long-term fiber goals we shared earlier this year. We are targeting 1.8 million marketable fiber service addresses. We ended the quarter at 968,000. We are also targeting 80% of total addresses to be served by fiber. We ended the quarter at 53%. And finally, we expect to offer speeds of one gig or to at least 95% of our footprint, and we finished the quarter with 75% at gig speeds. To reach this target, we will use a combination of fiber and coax technologies. Our goal is to reduce the number of addresses served by copper to less than 5% over time. Turning to slide 17.

The graph on the left shows the significant growth in our total footprint, up 27% over the last three years, driven by our fiber investments. The graph on the right shows the most recent five quarters of fiber service address delivery. This quarter is flat compared to the prior year. Our service address growth generally ramps throughout the year, which is consistent with our expectations for this year. We've added 41,000 addresses through the second quarter and plan to hit 150,000 new fiber addresses this year as we continue to increase the number of construction crews. We are also on track to hit an exciting milestone in the back half of the year, 1 million marketable fiber service addresses.

It will be a big achievement for the company and a reflection of the momentum behind our growing fiber program. Turning to slide 18. The graph on the left highlights our residential fiber connection growth. Connections have nearly doubled over the past three years, driven by our expansion efforts and the ongoing conversion of copper customers to fiber products in our incumbent markets. As we invest in fiber, we expect residential broadband connection growth to continue. The graph on the right shows the last five quarters of residential fiber net additions. We delivered 10,300 this quarter, comparable to the same period last year. On slide 19, we grew total service addresses 5% year over year.

On the right side of the slide, we see increased demand for higher broadband speeds. With 83% of our residential broadband customers taking 100 meg or higher and 26% taking one gig or higher at the end of the quarter. Looking at new customers that we added in the quarter, 56% took speeds of one gig or higher. Demand for faster speeds remained strong. On slide 20, average residential revenue per connection was up 1% year over year, due primarily to price increases. As reflected in our guidance, we expect more modest growth in residential revenue per connection this year as we focus on driving penetration. The chart on the right shows our revenue comparison year over year.

Overall revenue is down 1%. As a reminder, divested markets accounted for a $4 million decrease in revenues compared to the prior year. We'll talk more about revenues on the next slide. On slide 21, I'll touch on the financials. Total operating revenues were down 1% in the second quarter compared to the prior year. Excluding the impact of divestitures, revenue increased 1%, driven by growth in fiber subscribers and higher residential revenue per connection. This growth was partially offset by continued declines in our legacy cable and copper markets. Cash expenses increased 1% or $2 million year over year.

As we discussed last quarter, this increase in expense aligns with our 2025 priorities, which include investments in sales and marketing and advancing our transformation efforts. We're also continuing to staff our internal construction crews to drive more cost-effective address growth when compared to external contractors. Capital expenditures were higher than the same period last year, primarily due to spending on the EACAM program. We expect both CapEx and service address delivery to continue to increase in the back half of the year as we accelerate construction to deliver 150,000 new fiber service addresses in 2025. Over 80% of our full-year capital expenditures will be focused on fiber. Slide 22 shows our revised 2025 guidance.

We have updated the ranges for revenue, adjusted EBITDA, and adjusted OIBDA to reflect the divestiture of our Oklahoma ILEC market, which was not included in our previous guidance, as well as ongoing declines in our cable and copper markets. We are now projecting revenues to be in the range of $1.03 to $1.05 billion. Adjusted EBITDA is expected to be $320 million to $350 million. Adjusted OIBDA is expected to be $310 to $340 million, and our CapEx guidance remains unchanged. Before closing, I want to recognize the entire TDS Telecom team for their outstanding commitment and hard work. We have a lot in flight, and I'm confident in the team's ability to execute.

We're building momentum as we head into the second half of the year, and I'm excited about the company's future. I will now turn the call back over to Walter.

Walter Carlson: Thank you, Chris. Before opening it up for questions, I want to share a few concluding thoughts. We are pleased to have closed the T-Mobile transaction and are pleased to be able to use the proceeds to improve our balance sheet and to fund our fiber program. We also look forward to closing the AT&T and spectrum sales and to thoughtfully deploying those proceeds back into the business and into returns to shareholders. Telephone and Data Systems, Inc. is in a strong financial position and has excellent operating businesses in both towers and broadband. We look forward to continuing to delight our customers and to build our businesses. Now, operator Janine, let's open it up to questions.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you ask a question, please press star on your touch tone phone. And to withdraw your question, please press star 1 again. Our first question comes from the line of Rick Prentiss from Raymond James. Sir, your line is open.

Ric Prentiss: Thanks. Good morning, everybody.

Vicki Villacrez: Morning, Rick.

Ric Prentiss: Morning. Nice to get the T-Mobile deal over the finish line. I want to start on the TDS Telecom side. Obviously, there's definitely an incentive to raise the plant to fiber flag. I know Dixon just started recently, but can you give us an idea of when you can update us on whether you would expand and accelerate the 1.8 million service addresses?

Chris Bostfield: Hi, Rick. It's Chris. Yeah. We are super excited that Ken Dixon joined. He brings a lot of enthusiasm and momentum, and right now, we do think that there's a significant opportunity for edge out in our footprint to further expand our fiber footprint, and we're currently sizing those opportunities. We expect to share more in the upcoming quarters. But I will say that we intentionally chose specific markets to flag plants that we thought had great edge out and clustering abilities. So, again, I just want to reinforce that we think there's significant opportunity, but we're just not quite yet ready to share exactly what that looks like.

Vicki Villacrez: Thank you, Chris. And, Rick, I would add this is a critical step in our going forward capital allocation strategy. And with Ken on board, we're really excited for what he's seen across the business and the opportunities going forward. So we'll bring more back to the table.

Ric Prentiss: Okay. And, Vicki, I think you mentioned TDS would keep leverage under 1.5 turns while you evaluate that. Where do you see leverage at the TDS Telecom side kind of stabilizing at longer term?

Vicki Villacrez: Well, TDS Telecom is certainly consolidated and a wholly-owned subsidiary of TDS. So I'm looking at it collectively. As you know, we're putting in place leverage at the Array balance sheet at three times. We expect when we complete our spectrum transactions that we could put in place if, you know, the Array board of directors would approve a more regular dividend. And that would provide funding on a longer-term basis. So when I'm looking at our opportunities at TDS Telecom and on the TDS consolidated basis, you know, we're going to have significant proceeds that will help fund our opportunities, which is why we're looking right now to put a more rigorous and defined capital allocation strategy in place.

So we haven't quantified it yet, but we'll come back and share that with you. But for right now, we expect to stay at one time 1.5 times, which is really all the debt is paid off at the TDS level. And with leaving the preferreds in place, and then we have an option on our export credit. It's $150 million on whether we keep that in place or pay that off in the near term.

Ric Prentiss: Okay. Continuing on the TDS Telecom side, interesting to hear you brought the construction crew in or some construction crew in-house. We've been hearing about, you know, there could be some labor issues, material issues. Particularly as the one big beautiful bill kinda has ramped people's homes passed, service addresses passing. So can you talk a little bit just about access to getting the build plan done?

Chris Bostfield: Yeah, Rick. We still feel very confident in our ability to hit our 150,000 service addresses for the year. Just a little more color on that. We were a little late to get all of our EACAM contracts executed, but now we have those executed. Crews are really ramping up. We're liking what we're seeing. So we continue or we expect to continue to see that EACAM construction and address delivery to really ramp in the second half of the year. We're also bringing on a significant increase in both our internal construction crews and external construction crews to continue to ramp those expansion builds.

And, two, just to remind you, the seasonality of our build is very common that we see significant average delivery in the second half of the year. Not uncommon to see about 70% of our address delivery to occur in the second half of the year. So we're really pleased with the momentum. We had the strongest average delivery all year in June, and we beat that in July. We have great momentum, and we feel really confident in hitting our 150,000 address goal for the year.

Ric Prentiss: Okay. And last one on TDS Telecom, probably the most I've asked on TDS Telecom, but and then I'll have a quick one on Array. I think it would be helpful if we had some cohort analysis just looking at what you deployed in maybe 2022-2023, just to understand because the industry is evolving rapidly. Trying to figure out what the ultimate penetration goals would be and what kind of market share but also what kind of margins. So any thoughts on providing at a later date cohort analysis, and what are your thoughts as far as ultimate penetrations in your fiber markets?

Chris Bostfield: Yep. So, Rick, this is something we're starting to report on internally, and we plan to share very soon externally. And just to remind you what we expect to see for our expansion markets and those penetration curves is by month 12, we expect around 25 to 30% penetration. That's because we have an aggressive presales model that we put in place so sixty days in advance of new address delivery, we're out knocking on doors and signing up folks. So we see pretty high presales penetration right at launch. And that helps us achieve a really nice starting point for month 12.

And then year five, so more steady state, is when we expect 40% steady state penetration in these expansion markets. And then some markets take longer to get to that 40%, and some take quicker. Those that are a little bit slower to get there are some of our focus. So that's our expansion market. Then we also have our EACAM fiber market. Those have really good competitive dynamics by definition, any EACAM eligible location has no gig capable competition. That's approximately 30% of our ILEC footprint. And so we expect 65 to 75% penetration in those areas. Yeah. That's really good background, Chris.

And to answer your question, Rick, we have cohort penetration reporting in place internally that we've been reviewing with Ken Dixon on board. And we intend to share that. I think those are critical proof points that are the underpinning of our strategy as we go forward. So we will bring that to investors.

Ric Prentiss: That's really great news. I appreciate that. I know the market will appreciate that. Quickly for Doug, Tower reporting, good to hear that's coming as well. I'm getting my Christmas list early this year. The dividend sizing, would that be kind of sized on AFFO we can kinda see a payout ratio? Other quick one to tag that is time to close AT&T. You're saying second half. Are you thinking that's, like, a three-month process post T-Mobile close, or is that kinda closer to year-end? Just trying to think through dividend timing.

Doug Chambers: Good morning, Rick. Yes. So with respect to AFFO reporting, dividend per share, etcetera, we're going to bring all that in Q3. So as I said, our first quarter reporting as an independent tower company is Q3. We'll bring all that reporting to you in Q3. With respect to the AT&T spectrum close, it is subject to FCC approval. We don't control that process, obviously. So 2025 is our best estimate. Getting more precise in that time frame, we're not able to do right now.

Ric Prentiss: Okay. Appreciate it. Thanks, everybody.

Operator: Thank you. Then the number one on your telephone keypad. Our next question comes from the line of Sebastiano Petti from JPMorgan.

Sebastiano Petti: Hi. Thanks for the question, and as well on closing the T-Mobile transaction. Just, I guess, following up on Rick's follow-ups, if we could just perhaps think about the, you know, fiber backdrop, Chris, great to hear that your confidence in what the delivery, you know, the locations for the year, 150k. Should we think about the trajectory or shaping of overall fiber broadband additions for the year? Should we anticipate or do you still anticipate higher fiber additions year on year? Just kinda given the 150k is kinda still on track there. And then just one last one there as you're know, relatedly, you know, Rick talked about the cohort analysis. I think, yeah, that would be helpful.

Just the question that we get from investors is, you know, a lot of the growth is coming from some of your expansion markets and with some of these big broad build-out programs, you know, is that shrinking the white space? So perhaps you can contextualize, you know, the confidence in the net addition and maybe the competitive backdrop if anything has changed quite yet. And then I have a follow-up for Doug. Thank you.

Chris Bostfield: Hi, Sebastiano. So, yeah, to first hit on your question about fiber net addition, we are targeting still year-over-year improvement in fiber net addition. And so I touched on this a little bit with Rick, but our sales model is very closely tied to new fiber address delivery. Because of our aggressive presales model and preselling all new addresses sixty days before they launch, so when we see slower address delivery to start the year, we also tend to see slower net adds. However, you heard me say, we expect significant increase in address delivery in the second half of the year with our EACAM build ramping up, and us bringing on additional construction crews.

So we expect net additions to follow with that address delivery. We're also making sure that we don't lose sight on those addresses that we've launched several years ago that still don't have TDS fiber service. So there are additional tactics that Ken Dixon has put in place to ensure that we're going aggressively after those areas and increasing the penetration there. So with those tactics and with we finally have a fully staffed door-to-door team going into the second half of the year. We still feel very confident in improving our net additions for the full year compared to last year. So a little bit on competition, and you were specifically asking about our expansion markets.

So these were handpicked markets. There were nearly 100 communities, and we handpicked these based on their favorable competitive characteristics, their growth characteristics, among other factors. And we also specifically chose tier two and tier three communities because we our hypothesis was that these would be lower priority for incumbents to upgrade. And we've seen that play out. We still feel very confident and really pleased with the competitive landscape in our expansion markets.

Sebastiano Petti: That's super helpful. Thank you. And Doug, I think I asked you and LT this perhaps last quarter. But just kind of thinking about, you know, you talked about the C-band being beachfront. We don't disagree. But just thinking about, you know, trying to balance, you know, maybe value maximization against the backdrop of, you know, a big spectrum pipeline and portfolio that's gonna be coming to market after, you know, the reconciliation bill and, you know, particularly, also have AWS-3 reauction from DISH potential, maybe secondary market, you know, spectrum coming from that entity as well. And, you know, again, and then the upper C-band, you know, perhaps in 2026.

I mean, just kind of thinking about how that this upcoming pipeline of additional spectrum and what perhaps, you know, how that what's what that might do to carrier budgets and balance sheets, you know, influences perhaps how you're kinda thinking about the monetization of the remaining spectrum portfolio? Thank you.

Doug Chambers: Yes. Good morning, Sebastiano. And so the nice thing with the C-band spectrum is, one, it's deployable now, and it's very desirable mid-band spectrum, as you know. The other thing I mentioned in my script is that our first build deadline isn't until 2029. Second build deadline is 2031. So we have the luxury of time to be opportunistic about the sale of the spectrum. Certainly, supply and demand of spectrum and what's coming available through FCC auction and, you know, DISH what happens there is a factor. You know, we're considering that. And our goal is to maximize the value, and we have time to do it.

And our strategy is to, you know, take the time we need to make sure we're realizing the best value, and we'll be, you know, gauging interest and doing our marketing, you know, in the future.

Sebastiano Petti: Thank you, and congrats again.

Operator: Thank you. Our next question comes from the line of Vikash Harlalka from New Street Research. Please go ahead.

Vikash Harlalka: Hi. Thanks so much for taking my question. Couple of questions on the business side of TDS Telecom and then just a broader question on M&A. On the business side, can you just provide us an update on your mobile launch? If I remember correctly, you done some test markets. Where are you in terms of launching it nationwide?

Chris Bostfield: Yep. Hi there. So an update on our MVNO is we launched in select markets in 2024. We're calling our MVNO product, TDS Mobile. We just launched in the second quarter to all markets across our footprint. We have been taking a very phased, methodical approach as we're trying to work out all the kinks and ensure a great customer experience. But we are very excited because now we'll be able to offer the same products as our competitors. And in some markets, this will actually be a differentiator against our competition. It's also allowing us to offer the products that our customers want and should help us attract and retain customers over time.

So we're very pleased, and we're just getting kinda fully launched, and we expect to see a lot more growth in the future.

Vikash Harlalka: Thank you. And then my second question was about your pricing. Saw that recently you launched gig product for $49.99. That's a very aggressive pricing. What kind of step up should customers see and over what time frame on that?

Chris Bostfield: Yeah. So our pricing strategy really depends on what the competitive landscape is in a given market. And we want to make sure that there are no barriers to entry. So, typically, you'll see our entry-level pricing be just as aggressive as the other gig-capable provider in the market. And we just to make sure that the economics hold true if we offer a very aggressive entry-level price point, then we do have, usually, after two years, step up in price onto the full retail rack rate. And, typically, that's, like, a $20 increase that you'll see after two years. But we are starting to test more with different pricing strategies.

And in some cases, we are offering pricing that does not have that step up. So we're kinda test and learn to figure out the right optimization.

Vikash Harlalka: Got it. That's helpful. And then last question on M&A. You mentioned that you'll be looking for opportunities at the TDS.com level. Could you just give us some idea of what kind of assets you're looking at? I'm assuming you're only looking at fiber assets. What kind of profile are you looking at for those assets?

Walter Carlson: Yes. Good morning, Vikash. And with the bringing in-house of the proceeds from the T-Mobile transaction and the expected proceeds from the AT&T and Verizon transactions, I'd say we are at the beginning point of considering what M&A opportunities would make sense. And in particular, we are focused on fiber opportunities and fiber opportunities that would be synergistic with our existing properties and footprint. So it's just at the beginning of that analysis, and more to come in the future.

Vikash Harlalka: Got it. Thanks so much.

Operator: Thank you. Our last question comes from the line of Sergey Dluzhevskiy from Gabelli.

Sergey Dluzhevskiy: Good morning, guys. Thank you for taking my questions.

Doug Chambers: Morning.

Sergey Dluzhevskiy: My first question is for Doug. Doug, maybe you could talk a little bit about the main building blocks of your growth strategy for the tower business and the key steps that you're taking already to accelerate third-party colocations and what else on that front you expect to do in the next twelve to twenty-four months? What you would be doing differently potentially with an independent provider and what parts of your tower business give you as generally underappreciated by investors? Any opinion.

Doug Chambers: Yeah. Good morning, Sergey. So, you know, what we've done, I'll start with the fact in the fourth quarter of 2024, we brought our sales team and intake operations in-house from an outsourced provider, hired a head of sales, and that's yielded great dividends for us. Our new colo applications in 2025 are up over 100% versus the first quarter of 2024. And that team's just doing a fantastic job. They're fully staffed, and we're really pleased with the progress they've made. Part of the revenue increase, you saw 12% quarter over quarter. Part of that was due to the application fees that we received in '25. We didn't get in '24.

But even without those, we had a 7% quarter over quarter increase. The other thing we have is we have strong MLAs as well. Three carriers. They have compelling pricing. The carriers like them with favorable pricing, and it also provides good economics to us. And there's ease of implementation. And so we believe that helps us. Obviously, the T-Mobile new MLA is a tailwind for us. I'd also point to the fact that we have Array as a separate brand. And no longer part of a carrier. I don't think that's a significant benefit, but I do think it provides some benefit, more focus, more perceived as a pure-play tower company.

We also think there's tailwind in carrier investments in the next three years. So we're very optimistic about our future with respect to sales growth. Doing all the right things with our team, and, you know, right now, we're very focused on getting the T-Mobile MLA implemented. That's a, you know, significant effort for our organization and one that we will be successful and look forward to getting that completed.

Sergey Dluzhevskiy: Got it. Great. My second question is for Chris on the TDS Telecom side. So, obviously, fiber footprint expansion is a significant priority, and you have your 1.8 million passing target. In addition to just scaling the fiber footprint and this new CEO coming in, how would you describe the top two or three operational strategic priorities beyond just fiber expansion over the next few years? And what are the key steps that you're taking to improve the conversion of your fiber passings into paying customers?

Chris Bostfield: Yep. Hi, Sergey. So what I'll say over the next several years, we do have a handful of top strategic priorities that we're marching towards. First and foremost, like you said, is executing on the build plan and expanding our fiber footprint. We have a few large programs in place, EACAM, which we're very excited about to bring fiber to more rural areas. We have our expansion program, which is continuing to build to the 100 communities and hopefully even accelerate those. You also heard Vicki and I talk about edge-out opportunities, so we're going to continue to look at even expanding the fiber footprint further. That's one.

Number two is executing our sales and marketing and driving revenue and driving penetration. And so there's a lot of different efforts in place. This is where Ken Dixon and his background is great because this is his sweet spot. And so there's a lot of initiatives in place to ensure that we hit our targeted penetration curve as we deliver those addresses. And then lastly is executing on our business transformation. So last quarter, I talked about how we've been transforming into a fiber company in a meaningful way over the last few years.

But now we're also focused on streamlining our operations, enhancing elements of the customer experience, all to make sure we're driving margin improvement, OCF expansion over the next several years. So those are really our top three priorities as we look over the next few years.

Sergey Dluzhevskiy: Right. And my last question is for Walter. Walter, as you look beyond or as we look beyond the two remaining announced deals, at the Array at potentially additional spectrum integrations. How do the two companies, TDS Telecom, which is largely consumer in the fiber operator, and Array, which is a midsized tower company with additional spectrum and wireless partnership assets, how do those companies sit together? And in your opinion, does having these two companies under the same holding company umbrella in the current form or otherwise optimize shareholder value going forward?

And also, what types of additional shareholder value-enhancing moves beyond the announced transactions could we be looking for in terms of things that would come out of your toolkit?

Walter Carlson: Sergey, thank you. Obviously, we've been focused immensely on the very near term in terms of the T-Mobile transaction, the AT&T and Verizon transactions. Over the intermediate horizon or near to intermediate horizon, we do have the additional spectrum that you spoke to. We do believe we will be successful in monetizing that for many of the reasons that Doug stated. That frees up a lot of capital. And you're right that a tower business, which we believe will be a very successful tower, is different in concept perhaps than a largely consumer or small business-focused fiber business. So they are different in concept, but they're in the same industry.

And the financial power that the tower business can bring to the enterprise is very significant. So from my perspective, I view the combined power of these two businesses as we improve the execution that we have, and I think there will be a lot of value unlocked through improved execution as Doug and Chris have each indicated. And that will redound greatly to shareholder value. In terms of longer-term ideas with respect to other ways to unlock value, those will be considered. They're not the nearest term priority. But they are very much on our mind, and we will continue to report to you as we go forward.

I do think there are synergies between the type of thinking that goes into building a tower business and making it successful as well as the type of thinking that goes into making the fiber business successful. So they are different, but they are related in good ways that are productive.

Sergey Dluzhevskiy: Great. Thank you.

Operator: Thank you. This concludes our Q&A session. I will now turn the call over back to Colleen Thompson for closing remarks.

Colleen Thompson: Hey, thanks, everyone, for joining us today. Please reach out to Investor Relations with any additional questions, and have a great week.

Operator: This concludes today's conference. You may now disconnect.