Good day, and welcome to the TDS and U.S. Cellular Third Quarter 2022 Operating Results Conference Call. Please note, today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Colleen Thompson, Vice President of Corporate Relations. Ms. Thompson, you may begin your conference. Colleen Thompson;Vice President of Corporate Relations: Good morning, and thank you for joining us. We want to make you all aware of the presentation we have prepared to accompany our comments this morning, which you can find on the Investor Relations sections of the TDS and U.S. Cellular websites. With me today and offering prepared comments are: from TDS, Vicki Villacrez, Executive Vice President and Chief Financial Officer; from U.S. Cellular, LT Therivel, President and Chief Executive Officer; Doug Chambers, Executive Vice President, Chief Financial Officer and Treasurer; and from TDS Telecom, Michelle Brukwicki, Senior Vice President of Finance and Chief Financial Officer. This call is being simultaneously webcast on the TDS and U.S. Cellular Investor Relations websites. Please see the websites for slides referred to on this call, including non-GAAP reconciliations. We provide guidance for both adjusted operating income before depreciation and amortization, or OIBDA, and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, to highlight the contributions of U.S. Cellular's wireless partnerships. TDS and U.S. Cellular filed their SEC Forms 8-K, including the press releases and our 10-Qs yesterday. As shown on Slide 2, the information set forth in the presentation and discussed during this call contain 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. In terms of our upcoming IR schedule on Slide 3, we are attending the Raymond James Technology Conference in New York on December 7 and the City Communications, Media and Entertainment Conference in Scottsdale on January 5. And as always, our open-door policy can now be an open door, phone or video policy, so please reach out if you are interested in speaking with us. I will now turn the call over to Vicki Villacrez. Vicki?

Okay. Thanks, Colleen, and good morning, everyone. Both our business units are well positioned to take advantage of growth opportunities to enhance their competitive positions and have tightened guidance ranges as we enter the fourth quarter. As we discuss, both U.S. Cellular and TDS Telecom are in key investment cycles that are pressuring free cash flow near term, so with the goal to position us for growth and improved returns over time. Both businesses are effectively managing through inflationary and supply chain pressures through a number of mitigating actions to address these risks. Importantly, our business -- our balance sheet strength also positions us well to manage against the interest rate increases that we are currently seeing. We continue to be pleased with our financing strategy, which incorporates the combination of long-dated maturities and preferred equity in addition to opportunistic short-term financing to help fund our network modernization investments in both businesses, and expansion into new markets at TDS Telecom. I also want to highlight that during the quarter, we repurchased a modest amount of stock at both companies. As a result, we have spent $55 million in stock buybacks this year, $26 million and $29 million at TDS and U.S. Cellular, respectively. Okay. And now I'll turn the call over to LT.

Thanks, Vicki. Good morning, everybody. If I think back to our last quarter call, we'd recently launched a number of new pricing and promo offers that were designed to address the subscriber challenges that we saw in the first and second quarter. And while I'm encouraged with the early results of these promotions, you can see our all-in postpaid subscriber results are still challenged. But we are seeing a number of leading indicators moving in the right direction, and I'm going to expand on those shortly. But since many of our promotional efforts are designed to address churn, we know it's going to take some time for those efforts to translate into overall improved subscriber results. Now we're seeing continued competitive intensity in that as well as the shifts in the macro economy are reflected in our numbers in this past quarter. And so let me touch on each of those briefly. From a competitive perspective, substantially more investment is required in promo expense compared to several years ago. We see that our carriers expanding into rural America. And although our exposure to cable is lower than the national average, bundled wireless with wireline adds another competitor into the mix in parts of our footprint. Doug is going to discuss the rise in bad debt expense in some more detail. What we're seeing is that although the percentage of defaults are consistent with prepandemic levels, the rate per default is greater than in the past. And we anticipate that these macro factors are going to continue through the remainder of the year, so we've lowered the high end of our service revenue and profitability guidance for 2022. We still expect to be within our original range. We remain confident that we have the right strategies in place to drive customer growth and improve returns over time. As part of those strategies, during the third quarter of 2022, we've been executing our Any Phone Free For Anyone, new and existing customers, that's a mouthful. So we're just going to call it new and existing promotion for the rest of the call. We've been executing that. We've launched more aggressive flat rate pricing in certain markets. And those offers have led to improvements in several key areas. Let me just kind of talk about those each one by one. The first is we're seeing a 54% increase in upgrades. And we see a 6% increase in add-a-line gross adds compared to the prior year. And as a result, our percentage of postpaid handset connections that are in contract is now at 62%. And not only is that up from 59% at the end just of last quarter when we initially launched the promotion, but it's also the highest percentage in contract that we've seen since 2019. And we expect that percentage of customers in contract to continue to increase. And this is significant because in-contract customers churn at a much lower rate than out-of-contract customers. We believe those moves should lead to lower churn in future periods. We've got a highlight in postpaid ARPU. It's growing nicely at 4% year-over-year. It's one of the highest in the industry. And that's despite a highly promotional environment where those device discounts are actually a headwind to ARPU. Team has done a really nice job of helping our customers realize the value of premium plans and services and that drives ARPU growth. We also have a cost optimization program that remains strong, and it's helping to mitigate the effects of inflation, though it's not apparent in the face of the third quarter financials due to increased loss on equipment and bad debt expense in the quarter. Other areas of the business, we see momentum in our growth initiatives. Fixed wireless products remained strong. Gross additions were up 82% year-over-year. We've also launched promotional offers that bundle fixed wireless and mobility together, and we're going to have further opportunities to expand this product as we launch our mid-band spectrum in late 2023 and early 2024. Towers produced another quarter of double-digit revenues, up 14%, and that's due principally to a 17% increase in the number of colocators. Brief comment on the network, our network modernization program and our multiyear 5G deployment has progressed nicely. We currently have 45% of our POPs covered with 5G. We've completed the modernization of sites that carry 75% of our total traffic, and we have plans to expand 5G coverage to over 60% of our POPs by the end of 2023. And where we've modernized our network to 5G, we see better performance and better customer perception of network quality. In addition, we successfully won 34 wireless licenses in auction 108, and that helped us fill in some mid-band gaps at a really attractive price. I also want to highlight that U.S. Cellular is once again refreshing its Board, appointing Xavier Williams to the Board effective January 1, 2023. With over 30 years of telecommunications experience, the U.S. Cellular Board will benefit from Xavier's significant experience, and we really look forward to his contributions. I want to end with a comment about the associates at U.S. Cellular. We recently completed our annual culture survey, and the results, once again, underscore the amazing culture and the high associate satisfaction that we have. And so to summarize, while we've seen postpaid subscriber growth challenges, I'm optimistic we have the right strategy and we have the right initiatives underway, especially as we head into the busy holiday season. And I'm pleased with the trajectory of ARPU in our growth areas like fixed wireless and towers. So I'll now turn the call over to Doug, who's going to take you through the operating and financial results in more detail. Doug?

Thanks, LT. Good morning. Let's start with a review of customer results on Slide 8. Postpaid handset gross additions increased by 2,000, driven by increased add-a-line activity, as LT mentioned previously. Postpaid handset net additions were down 17,000 driven by an increase in churn, which I will discuss in a moment. However, compared to the first and second quarter our ongoing promotions drove improvements in both gross and net additions. Connected device gross additions increased by 4,000 driven by fixed wireless additions, while net additions decreased by 6,000, primarily due to higher defections, which I will discuss on the next slide. Overall, we are very pleased with our momentum in fixed wireless, and we now have a base of 66,000 customers with this product, up 40% from the prior year and 16% from the prior quarter. Let's turn to the postpaid churn rate shown on Slide 9. Postpaid handset churn increased from the prior year fairly evenly between voluntary and involuntary. Voluntary churn increased as a result of increased switching activity and aggressive industry-wide competition. Involuntary churn also increased as the frequency of nonpay customers increased to prepandemic norms. Total postpaid churn, combining handsets and connected devices, increased due to higher handset churn and certain business and government customers disconnecting connected devices, many of which were originally activated during the pandemic in conjunction with government and agency funding that has subsequently ended. Moving to Slide 10. Postpaid gross additions declined 12,000 and prepaid net additions decreased 9,000. Both declines were due to continued aggression in the competitive environment. In response, we've launched new pricing for certain prepaid plans in July, which is driving sequential improvement in both gross and net additions, which were positive in Q3 for the first time in 2022. Now let's turn to the financial results, starting on Slide 11. Total operating revenues for the third quarter increased 7% from the prior year. Retail service revenues were relatively flat as higher average revenue per user was offset by a decrease in average postpaid connections, combined with the discrete adjustment related to the timing of recognition of regulatory fee billings that increased revenue in 2021. Inbound roaming revenue declined 43% due to lower rates. The largest driver of this rate decrease is the renegotiations of terms with other carriers, which also has the impact of decreasing our roaming expense. Equipment sales revenue increased by 32% due primarily to an increase in volume as a result of strong promotional activity that drove the 54% increase in handset upgrades. Turning to Slide 12. LT mentioned the strong increase in the average revenue per user, and this increase, along with the increase in ARPA, was driven primarily by favorable plan and product offering mix, an increase in cost recovery surcharges and an increase in device protection revenues. These increases were partially offset by an increase in promotional costs. At the end of the quarter, 38% of our handset customers are on our 2 highest tiers of unlimited plans, and we are very pleased with the consistent growth that we've seen in this area. Our overall financial results for the quarter are shown on Slide 14. For this discussion, I will refer to adjusted operating income before depreciation and amortization as adjusted operating income. Adjusted operating income declined 23%, driven by increases in loss in equipment and bad debt expense. As LT commented earlier, we ran our new and existing promotion throughout the third quarter in a majority of our footprint. This promotion is designed to reward our existing customers, reduce churn and ultimately increase service revenue from increased customer volumes and ARPU over time. As previously discussed, in the near term, this promotion drove a high upgrade rate in the third quarter and was the primary driver of a $28 million increase in loss on equipment. Further, bad debts expense increased $29 million as our involuntary churn rate has returned to prepandemic levels and the average write-off has increased as a result of customers selecting higher-priced devices, partially attributable to promotional incentives. As a reminder, bad debts expense was unusually low throughout 2021 as a result of the continuing impacts of the pandemic, including government stimulus payments and high consumer savings rates, which resulted in strong customer payment behavior in the prior year. We expect loss on equipment and bad debts expense to remain at higher levels than the prior year in the fourth quarter as we plan to continue our new and existing promotion, and we expect involuntary churn and bad debts expense to continue to follow prepandemic trends. LT mentioned our ongoing cost optimization program, and this continues to deliver results. Despite our current inflationary environment, excluding cost of equipment sold and bad debts expense, other cash expenses decreased $14 million year-over-year. Turning to Slide 15. I will cover our guidance for the full year 2022. Our guidance remains within the original ranges that we have provided all year. However, we are lowering the top end of the range for service revenues, adjusted operating income and adjusted EBITDA. All of these ranges are negatively impacted by our subscriber growth challenges in 2022. Further, the adjusted operating income and adjusted EBITDA ranges are also impacted by the promotional investment we are making in our new and existing promotion and relatively higher levels of bad debts expense. We believe it will take time for our promotional offers to drive subscriber results, but we are encouraged with the positive trends we've discussed previously. We are committed to staying the course, and we are planning to continue our aggressive promotional activity during the holiday season, which is reflected in these estimates. Further, we have been taking actions to mitigate bad debts and, as always, are balancing those measures with our subscriber growth objectives. As a result, we have narrowed our guidance by decreasing the high end of the range of service revenues by $50 million and both adjusted operating income and adjusted EBITDA by $75 million. For capital expenditures, we are maintaining our guidance range as our investments in 5G and network modernization, targeted millimeter wave buildout and initial preparation for mid-band spectrum deployments remain on track. I will now turn the call over to Michelle Brukwicki, Michelle?

Thanks, Doug, and good morning, everyone. We are pleased with our results at TDS Telecom for the third quarter, and I'm also pleased to report that we are continuing to grow our business by providing quality, high-speed broadband. Our strategy is working. TDS Telecom grew its footprint by 7% from a year ago, now serving 1.5 million service addresses across our markets. This quarter, we added 33,000 marketable fiber service addresses to our footprint. We are directing our investments to expand our fiber footprint in new and existing markets and to enhance our product offerings. These investments are driving revenue and broadband connection growth. In our expansion markets, we began offering service in Billings, Montana, and Green Bay, Wisconsin, and announced fiber expansion into 18 additional Wisconsin communities. In total, today, we have nearly 100 communities in our fiber expansion program at various stages of development. In our cable markets, we have upgraded to offer 1 gig speed across our footprint and have achieved superior market share. In these markets, we are also deploying fiber in opportunistic areas. Likewise, in our incumbent wireline markets, we are very pleased that we have achieved superior market share where we've invested in fiber. In addition to our own funding, we drive faster speeds in our more rural markets by building to meet our A-CAM obligations and utilizing state broadband grants. In fact, TDS Telecom just successfully won a grant in Tennessee. This spring, the FCC issued a notice seeking comment on a proposed extension of the federal A-CAM program, which we fully support. We anticipate an extension would provide 6 additional years of revenue support in exchange for deploying higher broadband speeds. We have been working through the comment process and remain engaged with the FCC and hope to have a final rule later this year or early next year. Extending the current federal A-CAM program first and then pursuing BEAD program funding would provide the fastest path for TDS Telecom to take fiber deeper into our communities. Now Vicki alluded to this, and let me make some comments on the macroeconomic environment. As we do continue to face challenges that present cost pressures and stress our ability to meet our address delivery timelines in the short term, we are actively managing and mitigating the impacts of inflationary increases, labor shortages and supply chain challenges. And with the actions we are taking, we are well positioned to achieve our longer-term strategic plans. Now turning to Slide 18. We highlight the achievements we've made this quarter. Year-to-date, we completed construction of 72,000 marketable-fiber service addresses, deploying 33,000 in the quarter. We now serve 36% of our total footprint with fiber. And as we've previously shared, we expect to serve approximately 60% of our total footprint with fiber by 2026. In line with our growth objectives, service addresses grew 7% year-over-year. In the third quarter, we increased our availability of 1 gig speeds to 64% of our total service addresses, up from 57% a year ago. We also see positive trends in our broadband penetration rates for fully developed markets, and we still anticipate 40% to 50% consumer penetration in a steady state. Now although we're pleased with the 72,000-fiber service addresses we've deployed so far this year, our service address delivery is slower than planned due to some industry-wide headwinds, such as labor shortages and permitting complexities, which are putting pressure on our service address targets. If we continue on our current trajectory, we will deliver around 120,000 addresses for the year, a 40% increase over last year. As we've previously mentioned, our fiber program is a long-term strategy. And although service address delivery might shift between years, we're still confident of meeting our goal of 1.2 million fiber service addresses by 2026. On Slide 19, you can see the broadband connection growth across all markets. Total broadband residential connections grew 4% in the quarter as we fortify our networks with fiber and expand into new markets. Shown on the graph on the right, we see demand for greater broadband speeds, with 69% of our customers taking 100 megabits per second or greater, up from 65% a year ago. Our 1-gig product, along with our 2-gig product in certain markets are important tools that will allow us to defend and win new customers. We are working on a path to additional multi-gig products and expect to offer even higher speeds in 2023 and beyond. In areas where we offer 1-gig service, we are seeing 24% of our new customers taking the superior product. And finally, our focus on fast, reliable service has generated a 10% increase in total residential broadband revenue. Moving to Slide 20. Total revenues increased 2% from the prior year as broadband growth offset legacy declines. Residential revenues increased 5% across all markets. Price increases and overall product mix changes drove a 4% increase in average residential revenue per connection. As shown in the chart on the left, expansion market revenues increased year-over-year following the timing of service address delivery. Residential wireline incumbent and cable revenues increased year-over-year due to price increases and growth in broadband connections, partially offset by declines in video and voice connections. Commercial revenues decreased 5% in the quarter, primarily driven by lower CLEC connections, and wholesale revenues decreased 2%. As shown on Slide 21, cash expenses increased 9% year-over-year due to additional cost to support current and future growth, which is not yet reflected in our revenues. Cost to support our fiber expansion include direct costs such as sales, marketing, real estate and technicians in addition to shared service costs. As anticipated, the increase in cash expenses resulted in an adjusted EBITDA decline of 13% from the prior year. Capital expenditures increased 82% from last year as we increased our investment in fiber deployments, including accelerated equipment purchases. On Slide 22, we've provided our updated 2022 guidance. Our revenue and adjusted EBITDA are in line with our expectations. Now that we're closer to the end of the year, we are narrowing our range for adjusted EBITDA to be between $270 million and $290 million. Capital expenditures are also in line with our expectations despite our lower service address delivery estimate. Delayed spending on fiber builds will be offset by accelerated equipment purchases we are making to manage supply chain lead times. In closing, I want to thank all of our associates for their continued dedication and hard work, and I look forward to sharing our final 2022 results with everyone in February. Now I will turn the call back over to Colleen. Colleen Thompson;Vice President of Corporate Relations: Erika, we are now ready for questions.

[Operator Instructions] Your first question comes from the line of Rick Prentiss with Raymond James.

A couple of questions. We'll start on the wireless side. LT, Doug, you guys mentioned you've seen increasing in upgrades. Where were upgrades at in the quarter? And where do you think they're headed as we look into the next year?

Yes, Rick, our upgrade rate in Q3 was 8.2%. I would look for a similar trend in the fourth quarter. As we mentioned, we're running our new and existing promo throughout the end of the year, and that's driving a lot of upgrades.

Right. And one of the things you called out was also expanded competition in rural America. When you think about the voluntary churn side of things, where were you losing customers to if you think of the porting ratio kind of stats? Are you losing it to Verizon, AT&T, T-Mobile or the cable bundles?

Yes, I'll start by saying we've always lost and gained more customers from Verizon just by virtue of their market share. But with respect to trajectory as far as how that's headed, the loss share and win share, it very much reflects what you're seeing in the national trends. When you see the carriers report the winners and losers on a national basis, I would say are also -- that's reflective in our markets as well.

Okay. So you are seeing some buildout -- increasing buildout of AT&T and Verizon into your markets?

I would -- increasing -- well, a little bit from AT&T. What I would say is that, on a relative basis, we're losing less to Verizon than we have historically.

Yes. A couple of quick ones. On the fixed wireless side, obviously, some nice success there as others in the industry are starting to tap that. Who do you see is taking those services? Sort of on the opposite side of that first question, who are you gaining share from on the fixed wireless side? And I think I've seen some reports that you'd like to see some change in equipment. Help us understand kind of the trajectory there of fixed wireless, and who you're grabbing share from.

It's LT. So I think, generally, where we're selling this product and where we're seeing success, if you think about the product that we're selling, much of the sales is still on an LTE-based product. Some of it is 5G, where we've upgraded our network, but much of it is LTE. And so that product generally competes against DSL, against satellite. And so although we don't have the exact figures because we don't see them kind of reporting in the same way that we do the wireless moves, my expectation is that's generally who we're taking share from. Next year, when we fire up mid-band, which will be at the end of next year, I expect that mix to move more towards taking share from cable companies. But at least, right now, it's primarily, I would say, DSL and [ cell ].

Okay. And the last one, we've seen a lot of movement on the DISH side as they look to hit their bogey for population coverage. Any updated thoughts on just specifically, but other partnership agreements that you might be looking into working with as we think about capital efficiency in this wireless -- competitive wireless world?

I mean, I'd kind of answer that question in 2 ways. I mean, certainly, from the tower side of our business, we continue to see increased interest, both from DISH, from other players as well. I've mentioned before, we kind of opened the towers up for business about 1.5 years, 2 years ago, and we're seeing the benefits of that. And you see it in the revenue growth on the tower side. From a deeper partnership perspective, I think things like network sharing and so on, we continue to engage in those conversations. I do think, in the long run, this concept of building out 4 or 5 duplicative 5G or duplicative 6G networks in rural America doesn't make sense economically. And so I think there will be opportunity there. We continue to have conversations with players in the industry, but probably nothing specific to report beyond that. Colleen Thompson;Vice President of Corporate Relations: Operator, next question?

It's from the line of Simon Flannery with Morgan Stanley.

Great. LT, just continuing on, you talked about the mid-band, so perhaps you can just give us some more color around how long it will take you to sort of fully deploy the mid-band across your footprint? And is that mostly 2023 CapEx, how does that look versus '22? And then just a broader point on capital allocation. I think you started the call talking about this is a period of investment, both on the fiber side and on the wireless side, but that's putting strain on the balance sheet on leverage. So how do you think about capital allocation here about what target leverage should be, about the dividend, about your CapEx sort of levels and considering asset sales and other options to raise capital to pay for this?

Simon, thanks for the question. So let me start. I'll give you kind of a high-level thought about mid-band and mid-band deployment. And we've got Mike Irizarry, our CTO here, he'll add some more color and specifics, and then let me answer briefly the question on leverage, and then I'll ask Vicki to chime in since I imagine she'll have more specifics. So let me start with the question on leverage. We went through a substantive rebalancing of our balance sheet earlier this year. Overall cost of debt down substantively. I think we're in a very good position to fund the investments that we're making. Yes, we spent a lot of money on C-band and 3.45 spectrum, for example. I think we also got that spectrum at a fairly attractive rate relative to the rest of the auction prices. And we were able to pay for it with, I think, very reasonably priced debt. And so I think, from an overall balance sheet health perspective, I believe we're in good shape, and that was reinforced by conversations that we had here fairly recently with the rating agencies. I think that we're in a position to be able to fund the requisite 5G investments mid-band buildout in a way that doesn't particularly further strain the balance sheet, but I'm sure Vicki can give more details. Let me talk briefly about mid-band and then I'll have Mike go into more detail. So, Simon, the strategy is that we will be starting to roll out that mid-band to our towers now. So you can -- we'll be putting those radios on towers throughout 2023. However, that spectrum does not clear until the end of 2023. And so our goal is to be able to, for lack of a better word, flip a switch towards the end of '23, early '24 and already have a substantive amount of that mid-band spectrum deployed that will help us in 2 areas. The first, it will help us from an overall wireless perspective, improved speeds, improved quality. And so we're excited to get that out for our wireless customers. Where I also expect to see a really substantive lift is on the high-speed Internet side of the equation. We'll be able to start marketing a product. We haven't exactly decided the speeds we'll market at, but given that we're seeing gig speeds in trials, and we do have our millimeter wave-enabled product out there in the marketplace of 300 megs, you can expect to see something similar from a mid-band-enabled product. And we think it can be highly competitive in the marketplace. And so excited about that mid-band deployment and switching that on at the end of the year, both -- for both sides of that business. Mike, maybe you can give a little bit more detail about the deployment timeline and when we expect to see what from the mid-bander.

Simon, so LT gave a number for the end of 2023, and we're on track to light those sites up. We've started to design, purchase order and all the design stuff to launch those up. And as we've done with other large capital-intensive complex project, we break it over multiple years. This project will be very similar. We will pick up speed after 2023 and look to activate anywhere between 800 to 1,000 sites per year, very strategically targeted where we can improve the customer experience, offload capacity and also synergize that with the fixed wireless opportunity that LT talked about. So we're excited about it and on track to meet that plan.

Thanks, Mike. And, Simon, I'll just jump in here on the leverage. As you know, TDS is always had a disciplined financial policy and maintained a conservative balance sheet. And that's really characterized with a significant portion of long-dated debt and preferred equity. And as I think about leverage, we don't have targeted leverage ratios per se. We need to balance that with the needs of the business. And as LT said, and I said in my opening comments, both our businesses are going through an investment cycle at the same time because they're taking advantage of a window of opportunity that we think is really important to position us for the long-term growth that both -- that everybody has been talking about going forward. The balance sheet has -- strength is really providing us with that room. And we've got the spectrum purchases paid for and behind us. They're really good spectrum. And now we need to stay focused on our fiber buildouts and our 5G modernization. I'd also say that we have increased our leverage to support our businesses, but our intent is to stay at levels that we feel comfortable managing the business at, which is moderate really for our industry overall. And as LT mentioned, our -- Moody's and S&P reaffirmed our credit rating because they're supportive of the type of investments that we're making. It's -- these investments are for the long-term sustainability of our business, and they're critical. We're well within our bank covenants. We've got room, and our plans incorporate the capital spending that we've got going forward. Colleen Thompson;Vice President of Corporate Relations: Okay. Operator, we're ready for the next question.

Philip Cusick from JPMorgan.

LT, maybe you can just talk about where you see this market going, the wireless market growing? AT&T was aggressive for the last few years. Now Verizon is matching them, giving away handsets to existing customers. T-Mobile is only going to get wider footprint and cable is taking share as well. I see you fighting hard, and I see the creativity, but this doesn't seem to be working out. So without going back through your script, help investors understand why they should have faith that you can turn the direction of subscriber growth without destroying profitability in the business?

Phil, you don't want me to go back through my script, I'm disappointed. I was really looking forward to moving back to it.

And I heard the whole thing. And I listened to it.

Reading it over again. So if I take a step back and I think about the strategy that I articulated a couple of years ago and that we have reinforced every time we're on one of these calls, it's a strategy that has at a really high level of 3 components. It is how do we try to stabilize the postpaid consumer side of the business, while investing in growth areas of the business and while driving increased levels of operating efficiency and capital efficiency. Let me take those one by one. The first, stabilizing postpaid. Last year, and up until the first 2 quarters of this year, we struck, I believe, a really good balance of profitability and subscriber growth. The first 2 quarters of this year, coming out of the pandemic, we saw substantive increase in voluntary churn. And so we felt that we needed to address that and address it aggressively. So what we've done in the past quarter is we've gotten much more aggressive on the upgrade side of the house. The more you can get customers under contract at a really high level, you can think of in-contract customers churning at half the rate of out-of-contract customers. And so the calculus is, we need to go get more aggressive of getting customers upgraded, and you've seen that in our numbers. 54% increase in upgrades, and that's driven a substantive growth in the number of customers in contract, 59% to 62%. So there's a bear case and a bull case for that strategy. The bear case is, well, these are customers that would have upgraded anyway, and consequently, we simply accelerated those upgrades. The bull case is these are customers that might have churned in the future, but instead, now that we have them in contract, they will not churn. And it is a long-term strategy. It's something that we've generally, as a company, invested in the long term. We've been comfortable with long-term strategies, and that's what we're doing. I hoped to have seen better improvements in voluntary churn this quarter. That being said, the leading indicators, I think, are strong for bringing customers in contract, and thus bringing churn down over time, couple that with some more aggressive gross add actions. Where we've run flat rate pricing, for example, in some of our lower share markets, we've seen very good progress. Add aligns up substantively. ARPU up substantively. And so the one piece of the equation that I think is disappointing for this quarter, and you see it in our numbers, is our LOE is up because we've had to spend to get those upgrades, and we haven't yet seen the improvement in voluntary churn. I expect it to come, and so I'm confident in the strategy, and we're going to stick with it. The second piece of the strategy is, okay, while you are working to stabilize postpaid, we have growth areas of the business. And I won't go through the script, but just to tick them off quickly, right? We invested in towers, 14% increase year-over-year in revenue. We increased in prepay -- we invested in prepaid, 2,000 positive net adds. We invested in high-speed Internet, 82% up gross adds year-over-year. Digital, B2B, we're seeing growth in those areas as well. And finally, where, other than LOE, which Doug talked about in his comments, we're seeing continued improvement in overall expense discipline and expenses across the company. And so the challenge, as you've accurately highlighted is, from a competitive perspective, stabilizing postpaid. The best way to do that is to bring churn down. I think we have the right offers in the marketplace to do that. We're seeing those leading indicators. And so I do expect churn to improve going into the fourth quarter, going into next year, while we continue to improve gross adds. Now you talked about competitive intensity. It's up. AT&T used FirstNet to expand a bit more aggressively into rural America. T-Mobile is certainly marketing more aggressively. Cable companies are expanding, but there hasn't been a dramatic change in competitive intensity in this last quarter. Doug mentioned, it's fairly steady and it's fairly consistent with trends we've seen in the past. The change is, we've decided to go invest heavily in upgrading our customers and get that back -- get them back into contract, and you see that in our results.

That's helpful. Two follow-ups, if I can. One is on upgrades. At this pace of upgrades, when does that start to impact ARPU because it sort of builds over time, and we've seen that at AT&T for the last few years. We're starting to see it at Verizon this year. I anticipate that you're going to see a -- sort of a drag down of that ARPU growth in the next year. Is that fair?

We do not expect to see that. So yes, there are dilutive impacts to ARPU from the offer in the form of those trailing ARPU credits. However, the way that we've structured the offer, and if I take you back to the regional strategy, we trialed a number of these types of approaches in our different regions before we launched this across the majority of our footprint. And the reason that we did that is we wanted to strike the right balance between aggressiveness and driving upgrades but also bringing customers up the rate stack. And so what you've seen is an expansion in ARPU due in no small part to the promotion. And our teams are doing a really nice job selling things like insurance and moving people up the rate stack irrespective of the promotion. But the promotion is moving people up the rate stack, and that is having -- that is offsetting some of that negative future ARPU trend. So no, we do not forecast further dilution in ARPU just because of this. In fact, we think we're going to be able to continue to expand ARPU. Maybe not exactly at the rate that you've seen this year, but we don't forecast ARPU dilution.

That's helpful. And then finally, you mentioned bad debt. It sounds like a similar rate but higher losses. Should I interpret that to mean that you're losing more per customer? And is that a function of the very large handset subsidies you've offered over the last 2 years? How have you changed -- if that's correct, how have you changed your credit scoring, maybe address that going forward?

Yes. So we always -- we have done some credit tightening strategically recently. We are looking at doing potentially more of that. We're always balancing our credit policy against the gross add potential of the good adds. And so we're very surgical in how we do that. And so we think we're in the right place. The reality is, as LT and I both mentioned during the call, the frequency of write-offs is back to prepandemic levels, and the rate per write-off is up about 15% since prepandemic levels. And so we have been making adjustments to our credit policy. We've been implementing additional anti-fraud measures in our stores, and we've been changing some of our collections strategies and tactics as well. So we are all over it, but there is a macro environment -- a macroeconomic aspect of this that is driving the majority of the increase. Colleen Thompson;Vice President of Corporate Relations: Next question, please?

Your next question comes from the line of Michael Rollins.

Two questions. First, I think back to the history of U.S. Cellular, I think back to a time where the company shed Chicago and St. Louis because the performance in those markets weren't matching other parts of the portfolio. Do you have a similar situation today where there's a tale of 2 cities where there's a certain percentage of your markets that are operating at one level and then another subset of the markets operating at a different level, different trend, different level of competitiveness? And if you can -- if that's the case, if you could maybe unpack some of those details, that would be great. And then just separately, just kind of curious, LT, where you're standing on the strategic front these days in terms of the urgency to try to take some strategic actions along the lines of ideas you've talked about in the past to try to change the narrative for U.S. Cellular over the longer term?

Mike, so -- as in any business, you're going to see some variability in terms of the profitability of our geographies. There isn't a 80-20 or some obvious delineation line. There's a range of profitability. Generally, that profitability correlates to 2 factors. The first -- and you will find neither of these surprising. The first factor is market penetration, where we have higher share, we generally have higher profitability. And the second is availability of high-quality spectrum. So where we have a strong spectrum position and we deliver a strong network experience because of it, we generally see higher profitability, better levels of network efficiency and so on. And so there's certainly a range, but I don't think there's anything surprising in terms of what's driving that range. From a strategic perspective, that's a really broad question. In terms of sense of urgency, I think we have a consistent sense of urgency in terms of executing the strategy that I articulated in my answer earlier. And so in terms of investing in areas of the business where we see attractive growth, we absolutely have urgency behind that. And so a continued focus on digital, for example. If we are going to serve customers with lower costs in a more variable fashion, serve people the way they want to be served, certainly coming out of the pandemic we have to invest more in a strong digital experience. And we're seeing that. Two years ago, our average score on the App Store was 1.5 stars, we are north of 4 now. And so that's an example of an area where we have urgency behind it. Certainly, high-speed Internet, we have the same urgency, opening up our towers, the same urgency. There's 2 more macro factors that I've discussed in the past. One is the network-sharing partnerships. It takes two to tango. And I think the last thing that you want to be doing is being desperate when you enter into that, and we're not. We think we have a really strong set of assets. We've compiled a really nice spectrum position. We own our own towers. We think we provide a really high-quality network experience. And so although I'm eager to find ways to reduce capital intensity over time, we're not going to do so hastily or in a position that doesn't benefit our shareholders and our customers and our employees. Another area that I've talked about, however, is government infrastructure funding. That's a strategic opportunity for us, particularly because the administration has been very clear. They want to invest more in broadband. And specifically, they want to invest more in broadband in rural America. And so both companies, I'll speak here for -- briefly for TDS Telecom as well. Both companies are investing in finding opportunities to leverage that funding. Michelle mentioned A-CAM in her discussions. We certainly are in discussions around the existing USF funding. But the really exciting opportunity is the upcoming BEAD funding that's being discussed. So the current timeline around that, it looks like the maps will come out later this year. There probably will be some discussion around those. I think the FCC has mentioned a challenging information process. And so I'm sure providers will engage robustly in that. But I expect at some point in the middle towards the back end of the year -- of next year, you'll start to see those funds flowing from the states. And we're optimistic that a chunk of those funds will go to rural fiber, where I think telecom is well positioned. And also to fixed wireless, where we are well positioned. We see it in some state grants. We recently won a state grant from the State of Nebraska, for example, $6 million to into new towers. So states see the benefit of investing in more infrastructure and co-investing with us. And in those investment conversations, we think we do so with credibility, and you talked about the history of U.S. Cellular. The history of U.S. Cellular is one of investing in these areas and providing connections where others don't, and states value that. And so you see that in the state grant from Nebraska. We're in similar conversations with a variety of states across our footprint. And by the way, that's before they even have some of the clarity of the BEAD funding and before those dollars start to flow. And so I do view that as another opportunity to transform our business, particularly around capital intensity. I've talked in the past the average tower costs between $600,000 and $1 million in rural America. And you have to have a certain density of customers if you're going to offset that investment. And where we don't have towers, it's not because we don't want to have towers, it's because the economics are challenging. Well, if the government can help co-invest and take $600,000 and make it $100,000, now we have the opportunities to serve customers in a very different way and do so at a much more attractive capital intensity. Michelle, I'm not sure if you want to chime in any more about how you guys are thinking about those programs, but I know Telecom's invested in them as well. And I don't want to speak clumsily for Telecom here.

Yes. No, thanks, LT. Actually, you did a great job articulating the position of both of our companies. As I mentioned in my comments, TDS Telecom is very excited about the funding that is available, both at the state level and at the federal level. We are part of the A-CAM program today and are very excited about where that A-CAM extension program could take us that certainly could provide additional funds to take even higher speeds to many, many customers in our most rural areas. And then outside of the A-CAM, we, too, see opportunity with the BEAD program. And as LT mentioned, we anticipate and hope that a lot of that money does go towards funding fiber for those unserved or underserved customers that are out in our territories. But there will be a place also we see for fixed wireless. Fiber might not be economical to go everywhere and so this could be a nice blend of helping fund fiber and helping fund fixed wireless for the enterprise. Colleen Thompson;Vice President of Corporate Relations: Operator, we are ready for the next question.

Your next question comes from the line of Sergey Dluzhevskiy with GAMCO Investors.

LT, maybe the first question is on your differentiated market approach and some of the offers that you try in those markets. And it seems like what you trialed before now you rolled out to a wider base in the third quarter. But I guess my question is, how are those local offers performed in the third quarter? And what do you need to take a greater step forward with local market approach so that it has a more meaningful impact on your customer intake and share?

Sergey, so if I break out our local offers since we -- just put a bit of math behind it to give you a sense of how much trialing we do. Since we regionalized about 18 months ago, I think we've run over 75 different promotional permutations of whether it's upgrade offers, or whether it's offers that are more designed to drive gross adds, we currently have a variety of different offers running across our footprint. In our lower-share markets, where we're running our flat rate offers, we're seeing very good performance from a gross add perspective. In our existing-same-as-new markets, we've seen attractive add-a-line improvements. And I won't rehash since Rick already gave me a hard time about requoting things from my script, I won't do it again. But you get a sense of what we're seeing from an upgrade perspective and an add-a-line perspective in the areas where we're running our existing-same-as-new promotion. The key dynamic is, are those promotions going to drive the desired churn -- the voluntary churn performance that we need them to? In the markets that we trialed them in previously, it took us 6 months or so, 6, 7 months to see the improvements in voluntary churn. And so if you forecast that forward, that helps explain why we are cautiously optimistic that we're going to see that voluntary churn trend turn in the fourth quarter and into early next year. But you don't know. The bet on upgrades is that the bull case will prevail and not the bear case, and that the people that are upgrading are doing so, they might have been future churners, but we've been able to put an attractive offer in front of them. They have confidence in our network. They have confidence in the customer experience that we provide, and they're choosing to stick with us. And we've seen that in the markets that we trialed this in, and we expect to see it across the footprint. There's the possibility that what we've done instead is accelerate upgrades. And so meaning they would have upgraded, and we've accelerated them. And so that helps explain a little bit of the variability that we've put in our guidance for the rest of the year, is because you're never going to have exact certainty around that. But the beautiful thing about this regional approach that we have is that we can trial these things. And I'll bring you back to the conversation around ARPU and ARPU balance that was asked earlier. There's a reason why we've been able to drive the ARPU performance that we have. Some of it is really good execution by our retail teams. But some of it is because we're structuring these promotions in a way that helps expand ARPU. And we've done that because of the regional trials, and you can expect to see that continue through the rest of the year. When we get into the holiday season, we tend to have ubiquitous offers across the footprint. So we kind of hit pause for a little bit on the trials. The whole goal is to enter into the holiday season with a consistent approach and one that we think works and strikes the right balance between financial and subscriber results. And then as we get into early next year, you can expect to see those regional trials kick back off again so that we're operating with as strong information as we possibly can.

Got it. Maybe I'll ask a follow-up question to Mike's question around strategic actions, but maybe just a different permutation of that. So obviously, the turnaround is taking a bit longer than you would like. And I guess, in light of the current competitive environment and capital markets environment, how do you view financial engineering moves that may surface value or highlight value of your various assets, whether it's towers, investments in wireless partnerships and new spectrum that could provide you with additional capital to invest in growth and also just provide broader strategic flexibility?

So in terms of the timing, I'm actually -- I think that, from a strategic perspective, if I look at the growth investments that we've made and the performance of those growth investments, I think it's right on track. I think from a stabilizing postpaid, it's a very challenging competitive environment out there. And I think that we're trying to navigate it about as best as we can. You used the word financial engineering, and that's what I want to avoid. I want to make sure that we have the financial capacity to make the investments that we need. I think that the corporate team and our finance team did a really nice job of restructuring our balance sheet to give us the flexibility that we need to purchase the mid-band spectrum that we did. I don't see, in the near term, new spectrum auctions on the immediate horizon. They're going to further stress that. We have a good plan that Mike articulated about building out C-band, making those investments on the network modernization that we need to make. And I think our balance sheet is in a good place to do that. And so, luckily, I don't feel the need to engage in that financial engineering because we took advantage of an environment of cheap debt. And I think we now have a position to continue to execute the strategy and do so in a way that helps us take share in the marketplace and helps us continue to drive those growth areas. And so I'm happy with the flexibility that we have. I think we're in a good place from a balance sheet and an asset perspective. And now it's time to continue to execute that strategy and start to see the benefits in the marketplace. So thanks for the question, Sergey.

Okay. And my last question, could you talk a little bit about the progress that you've made over the last quarter or 2 in terms of business and government sector as far as kind of revenue growth, in terms of share? And what are the top objectives, maybe for next year? And where do you see this going in terms of size and impact from the company over the next few years?

Yes. Sergey, I'll be quick because I think we're out of time. But briefly, we continue -- I talked in the last quarter in more specifics about some of the momentum that we were seeing on the private networking side, on the IoT side. We continue to see good demand for those products from our customers. At a very high level, we have 3 trends that we're working through on the business side. The first is a negative trend, which is we have connected devices that were gross adds that were driven by government subsidies that happened during the pandemic, and we're seeing people disconnect those. They're not porting them. If they were to port them to a competitor, I would be worried, but they're not porting them. These were subsidy-driven devices and those subsidies have gone away and those devices are churning off. On the postpaid handset side, we want to see revenue stability, and generally, we're seeing that -- and then where we're seeing -- where we want to have upside is on those new areas of growth, IoT, private networking. And you want those areas of growth to offset the challenges that you have in connected devices. And we're seeing that. So we're seeing the interest from enterprise clients, from small business clients. We're being brought into deals that I don't think we would have been brought into before, before we had invested in that distribution and invest in those operational capabilities. And so I'm comfortable with that balance because if you think about the negative drag, we're on the back end of that negative drag in terms of connected device disconnects from the pandemic, whereas, I believe, we're only at the beginning of what we're seeing from IoT, private networking and some of these enterprise 5G use cases. So I remain optimistic about where we're going from a B2B perspective. Thanks for the questions, everybody. Colleen Thompson;Vice President of Corporate Relations: That was our last question, operator.

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