Telephone and Data Systems, Inc. (NYSE:TDS) Q2 2024 Earnings Conference Call August 2, 2024 10:00 AM ET
Company Participants
Colleen Thompson – Vice President of Corporate Relations
Vicki L. Villacrez – Executive Vice President and Chief Financial Officer
LT Therivel – President and Chief Executive Officer, UScellular
Doug Chambers – Executive Vice President, Chief Financial Officer & Treasurer
Michelle Brukwicki – Senior Vice President of Finance and Chief Financial Officer, TDS Telecom
Conference Call Participants
Ric Prentiss – Raymond James
Sergey Dluzhevskiy – Gamco Investors
Jonathan Atkin – RBC
Operator
Ladies and gentlemen, thank you for standing by. My name is John, and I’ll be your conference operator for today. At this time, I would like to welcome everyone to the TDS and UScellular Second Quarter 2024 Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
I would now like to turn the call over to, Colleen Thompson, Vice President, Corporate Relations. Please go ahead.
Colleen Thompson
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 UScellular websites.
With me today and offering prepared comments are from TDS, Vicki L. Villacrez, Executive Vice President and Chief Financial Officer. From UScellular, 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 UScellular 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 UScellular’s wireless partnerships. TDS and UScellular filed their SEC Forms 8-K, including the press releases and our 10-Qs earlier this morning.
As shown on Slide 2, 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 Vicki Villacrez. Vicki?
Vicki L. Villacrez
Okay. Thank you, Colleen, and good morning, everyone. This quarter reflects the culmination of a number of initiatives that will position the company for the future. Over the past year, there has been an incredible amount of work performed by our teams across the entire enterprise.
Most notably, in late May, we announced a transaction arising from our strategic review of alternatives for UScellular. We are excited about the transaction which is pending regulatory approval as it would unlock value for our shareholders and provides clear benefits to our customers. UScellular is retaining its nearly 4,400 owned towers, its equity partnership investments and approximately 70% of spectrum assets, which the company is currently working on monetizing.
Also in the quarter, we announced that we entered into a definitive agreement to sell our OneNeck IT Solutions operations. We expect the transaction to close later this quarter and we intend to use the proceeds to support our planned spend in TDS Telecom’s current fiber program.
Turning to financial results. I’m very pleased that both business units delivered double-digit year-over-year improvements in adjusted EBITDA, while making important investments in our networks in order to keep up with our customers’ needs for increasing usage and speeds. Improved profitability drove increased TDS free cash flow, up year-over-year and sequentially.
We will continue to take a measured approach prioritizing and funding the investments in our businesses, while maintaining a focus on cost efficiencies across the enterprise. Our management of the balance sheet has resulted in an improvement in leverage ratios, which are down year-over-year and sequentially.
We ended the quarter in a good cash and liquidity position. UScellular continues to generate free cash flow through adjusted EBITDA growth and prudent management of capital. They also paid down approximately $140 million in debt in the quarter. TDS Telecom is maintaining its focus on free cash flow by sizing and pacing the timing of capital expenditures commensurate with EBITDA generation.
And at TDS parent, we have an undrawn revolver and term loan capacity coupled with pending divestitures that puts us in place to continue supporting our fiber program as we move into the back half of the year and into 2025. I will also like to thank all of the associates for their hard work in these dynamic times.
And now, I will turn it over to LT, for further comments.
LT Therivel
Thanks, Vicki. Good morning, everyone. If you turn to Slide 5, you can see our quarterly highlights. The May announcement of our pending transaction with T-Mobile for the sale of our wireless operations is obviously a significant change to our long-term strategic direction. And, as we discussed during our call in late May provides substantial benefits to all stakeholders.
We filed an information statement on July 26, which contains details of both the transaction and the strategic alternatives review process and also unaudited historical and pro forma financial information. We’ve launched the regulatory approval process and we remain optimistic that this process will have a favorable outcome. We remain convinced that the transaction with T-Mobile is the best long-term option for our customers as they will have the long-term benefits of greater scale and a more competitive network.
That said, in the near-term, we remain highly focused on operating our business and delivering strong operational and financial results. And, our performance this quarter is evidence that we are on-track for doing just that. We also announced that we’ll be seeking to monetize the remaining 70% of our spectrum that T-Mobile will not be purchasing and this is an additional opportunity to unlock significant value. That process is active and ongoing and given the nature of that process, we don’t expect to have updates until it is concluded.
In conjunction with entering into the transaction with T-Mobile, we’re now reporting our results of operations in two segments, Wireless and Towers. And, this new segment reporting provides perspective on the Wireless operations that we expect to convey to T-Mobile upon close of the transaction pending regulatory approval and the Tower operations. And, this will add an anchor tenant for at least 15 years under the new MLA.
We provided historical segment results in a Form 8-K that we filed on July 16. We’ve included segment results for the second quarter of 2024 in our Investor Presentation and in our Form 10-Q that we filed this morning. Doug, will also talk a little bit more about towers during his section.
Let me talk a little bit about the quarterly results. Total net adds including postpaid and prepaid improved 15,000 year-over-year, $36,000 net loss in 2023 to a $21,000 net loss in 2024. And sequentially, total net adds improved by 36,000. Since the beginning of the year, we’ve made a number of promotional changes designed to improve our subscriber trajectory while remaining financially prudent.
And I believe these changes have been a significant driver of our sequential improvement in subscriber results in the second quarter. And, while we’ll keep working to further improve postpaid handset results, we’re encouraged by the sequential improvement compared to the prior two quarters. We also continue to deliver solid year-over-year postpaid ARPU growth of 2%.
In addition, fixed wireless continues on a strong growth trajectory as our subscribers grew to 134,000 and that’s a 40% increase from the prior year. The competitive environment remains intense. Carrier promotions remain very aggressive and cable wireless remains a formidable competitor. Cable benefits from their ability to bundle broadband and mobility. And, you’ll hear Michelle talk about TDS Telecom’s progress in this area during her section.
Cable wireless also has an economic advantage, because they can offload a significantly greater amount of their traffic to Wi-Fi. And, we’re seeing cable offering customers buy one line and get one line free and also free mobile lines as a retention offer for subscribers rolling off the ACP program. And, this is all in the broader context of the total pool of available subscribers declining 9% in the quarter. And, given those challenges, although we do remain net add negative, I’m pleased with our sequential improvement in subscriber results as well as our ARPU expansion.
Customer retention remains a key focus for us in both postpaid and handset and prepaid churn improved year-over-year. Postpaid handset churn improved four basis points as we’ve been rewarding our existing customers with US Days, US Days repulsed periods where existing customers are eligible for attractive upgrade promotions.
In addition, prepaid churn improved by almost 60 basis points. We improved distribution and we continue to deliver a great product, compelling pricing and enhanced digital engagement for our prepaid customers. And, the result of these efforts drove positive net adds in our prepaid business in the second quarter.
While our exposure to ACP was relatively minimal about 19,000 customers, we’ve worked with those customers to provide them with special offers to ensure they are able to stay connected. Our multi-year cost efficiency program continues to drive positive expense momentum and has enabled us to successfully deliver improved adjusted OIBDA, up 14% in the quarter.
And during the quarter, expenses were down in all major categories, which is impressive considering network costs are increasing with the 5G rollout. Although this is mitigated with the decommissioning of the CDMA network, the team is doing an outstanding job of managing expenses.
And speaking of our 5G rollout, our mid-band deployment remains on-track. By the end of 2024, we expect to have mid-band on cell sites that handle almost 50% of our data traffic. And, this is in addition to having 80% of our data traffic already being handled by sites that have been upgraded to low-band 5G. And, this mid-band is a powerful enhancement to our network, which will allow us to further deliver the speeds and the capacity that our customers need for both mobility and fixed wireless.
Overall, I’m really pleased with subscriber momentum we’ve seen in the second quarter and we continue to deliver strong financial results. 2024 has been a year of unprecedented change for the organization. And, I want to recognize with all of these changes, the team has remained focused on our customers and keeping them connected to what matters most. I continue to be extremely proud of our team and their commitment to our mission.
And, I’ll now turn the call over to, Doug.
Doug Chambers
Thanks, LT. Good morning. Let’s review the financial results starting on Slide 9. Although service revenue declined 2% as a result of a decrease in the average subscriber base, partially offset by higher postpaid ARPU. As LT mentioned, adjusted OIBDA increased 14% as we continue to reduce cash expenses.
System operations expense decreased 5% as cost optimization actions, including the shutdown of our CDMA network in the first quarter of 2024, more than offset increases that resulted from our ongoing mid-band 5G deployment. Further, selling, general and administrative expenses decreased 5%. And, excluding the impact of $13 million of strategic alternatives expenses included in this expense category in the second quarter of 2024 decreased 9% due to decreases in sales related expenses, bad debts expense as well as decreases across various other general and administrative categories due to cost optimization initiatives.
Slides 10 and Slide 11 present the separate results for the Wireless and Towers segments. Intra-company revenues in the Towers segment represent rentals assessed to the UScellular Wireless segment. These rentals are assessed on a month-to-month basis and accordingly, there is no straight line accounting impact related to these rentals. These rentals are also reflected in system operations expense of the wireless segment.
The Intra-company rental rate reflects an estimated market rate based on the volume of tower rentals. Towers revenue from third-parties increased 1% in the second quarter as new co-location growth has slowed relative to recent years and was also impacted by defections, including Sprint related defections.
As we have discussed on prior calls, the Wireless industry has moderated capital expenditures beginning in 2023, and we experienced a corresponding slowdown in new tenant and amendment activity, which is impacting Tower revenue growth rates in 2024. Again, we remain bullish on the long-term outlook for our Towers business. Although near-term activity has slowed, the long-term capacity needs of the industry will require further densification that can drive demand for towers.
The tenancy rate of our portfolio of towers is still below the industry average and the towers are uniquely positioned geographically. So, we believe we have a lot of opportunity to grow. Further, the pending transaction with T-Mobile, which is subject to regulatory approval and their commitment to lease 2015 incremental towers for an initial term of 15 years, is expected to create a long-term foundation for third-party tower revenues.
I would like to make a few comments on the future outlook of our Towers business. As LT mentioned, we filed a Form 8-K on July 16 that contains an exhibit with historical financial information on our Tower segment as well as an exhibit with an Investor Presentation to provide perspective on how our current Tower segment operating results are expected to change after the close of the pending transaction to cellular wireless operations to T-Mobile, which is subject to regulatory approval.
Post transaction close, significant changes to our Towers’ operations include the loss of Intra-company Tower revenue from UScellular and the addition of incremental tower revenue from T-Mobile resulting from the Master License Agreement that is part of the transaction.
As a result, we expect longer-term adjusted OIBDA margins for the Tower segment that is three years to five years post transaction close to be in excess of 50%. The expected margin excludes non-recurring expenses such as de-commissioning costs. The post transaction close financial projections include critical estimates and assumptions that can be found in the July 16, Investor Presentation. Changes in these estimates and assumptions, including future events, could impact these financial projections.
Further, we have not determined the long-term strategy for our Tower operations post transaction close. So, these financial projections are subject to change as that strategy and related operating decisions are further developed. Briefly on free cash flow. As Vicki mentioned, UScellular delivered strong free cash flow in the first six months of 2024 of $226 million through adjusted OIBDA growth and prudent management of both capital expenditures and working capital.
Our 2024 financial guidance on Slide 12 remains unchanged from the guidance we issued in February of this year as we remain on-track to deliver on our financial plan. As a reminder, as mentioned last quarter, we expect capital expenditures for the full-year 2024 to trend toward the lower-end of our guidance range and be less than 2023 capital expenditures.
I will now turn the call over to, Michelle Brukwicki. Michelle?
Michelle Brukwicki
Thank you, Doug, and good morning, everyone. Let’s turn to Slide 14. I am happy to report that our broadband strategy delivered nice top and bottom line growth again this quarter. Some highlights include a 4% increase in operating revenues, a 5% increase in residential broadband connections, a 5% increase in residential ARPU and due to our disciplined expense management, a 32% increase in adjusted EBITDA in the quarter.
In addition to delivering strong financial results, we are continuing to grow our footprint, expanding service addresses 10% year-over-year, including 27,000 new marketable fiber addresses in the second quarter. We are making good progress towards our 2024 goal of 125,000 marketable fiber addresses. We’re also making progress on adding wireless to our bundle.
During the second quarter, we announced that we are officially entering the MVNO market through the established NCTC partnerships. Our product will be called TDS Mobile and we plan to begin offering it later this year. We believe that adding Mobile to our product portfolio will be complementary to our broadband offering and it will enable us to offer a full suite of competitive products and services to our customers.
Initially, TDS Mobile will be offered exclusively for broadband customers in select areas, but over time we plan to offer it in all of our markets, expansion, incumbent and cable. We will provide pricing and device information closer to market launch.
Moving to Slide 15. You can see where we are on our longer-term scorecard. We are targeting 1.2 million marketable fiber service addresses. We ended the quarter with 854,000. This reflects progress in growing fiber through our expansion markets as well as fibering up our incumbent markets. We’re also targeting 60% of our total service addresses to be served by fiber. We ended the quarter with 49%. In our ILEC, 44% of our addresses are fibered up. And finally, we are expecting to offer speeds of one gig or higher to at least 80% of our footprint. We finished the quarter with 73% at gig speeds.
On Slide 16, you can see that we are growing our footprint with a 10% increase in total service addresses year-over-year. As shown on the right side of the slide, we see increased demand for higher broadband speeds with 79% of our customers taking 100 megabits per second or greater, up from 74% a year ago. We continue to increase the availability of Gig+ speeds and customer take rates of these speeds are growing with 19% of our customer base on one gig or higher at the end of the quarter.
Turning to Slide 17. You can see that we had 2,100 residential broadband net adds in the quarter, which contributed to 5% growth in residential broadband connections year-over-year. As we deliver new fiber service addresses, our teams are marketing and selling into those addresses.
This quarter, we delivered 7,400 residential broadband net adds in our expansion markets. While this is consistent with recent results, net adds did come in slower than our expectations this quarter. We have plans in place aimed at ramping our broadband sales over the coming quarters and we remain focused on achieving our penetration targets.
Overall, the fundamentals of our fiber program are strong. These markets are contributing to revenue and adjusted EBITDA growth. Our expansion markets are more cost effective than our business cases expected and we’re seeing that fiber markets are the most efficient networks to run. Now a few more comments on net adds.
We had two discrete events this quarter that impacted this metric. First, one of our cable markets in Ruidoso, New Mexico was devastated by wildfires, damaging customer homes, businesses and plant equipment. Service was disrupted to thousands of customers in that area and our teams have been working very hard to get customers back online as soon as possible. As of the end of June, we had approximately 1,000 broadband connection losses related to the fire.
We now have reestablished broadband services to over 90% of the community and are aggressively winning to work those customers back or to win those customers back.
Second, the ACP program ended during the quarter. Our team did a great job of getting these customers on other broadband plans that met their needs. Of our 19,000 ACP customers, only 2,400 chose to disconnect. In addition to these two discrete events, we are experiencing increased competitive pressures across our ILEC and cable markets.
This is consistent with industry trends. And specifically there’s more over builders in these markets. But in our ILEC where we have upgraded our network from copper to fiber, we have been able to effectively defend and compete. With support from our enhanced ACAM program, we will get even more fiber into our ILEC markets over the next few years.
And in our cable markets, we have a strong product capable of delivering gig speeds using DOCSIS 3.1. In addition, we strategically overbuild our networks with fiber in certain areas and we put fiber in all new greenfield builds.
In our cable markets, we continue to implement strategies to win and save customers in response to evolving industry competition. Also consistent with industry trends, we continue to experience video cord cutting. In addition, our video attachment rate has been lowered than planned and expect this trend to continue which will have an impact on revenue for the full-year.
Now turning to the middle graph, average residential revenue per connection increased 5%. This was due primarily to price increases. With increases in broadband connections and revenue per user, we saw 7% growth in residential revenues. Specifically, expansion markets delivered $28 million of residential revenues in the quarter compared to $18 million a year ago. As expected, commercial revenues decreased 6% in the quarter as we continue to decommission our CLEC markets.
And lastly, wholesale revenues increased 2% due to the incremental revenues we have started to receive under the enhanced ACAM program.
On Slide 18, you can see our quarterly performance. Operating revenues were up 4% in the quarter as the growth in residential revenues and wholesale was partially offset by the decline in commercial revenues. As our fiber connections and revenues grow coupled with a 6% decrease in cash expenses for the quarter, we are seeing nice growth in adjusted EBITDA, up 32% in the quarter.
Capital expenditures were $78 million in the quarter, down 41% from last year as planned.
Slide 19 shows our 2024 guidance. As previously mentioned, video connections are expected to be lower than planned and the ramp up of broadband net adds has been slower. Therefore, we’re now projecting revenues to be in the range of $1.05 billion to 1.08 billion. Although our revenue range is being lowered, the team has continued to exercise strong expense management.
As a result, we are now raising our adjusted OIBDA and adjusted EBITDA ranges to $330 million to $360 million. We are not making any changes to our capital expenditures guidance. With increased adjusted EBITDA and unchanged capital, we anticipate delivering higher free cash flow than originally expected.
As we’ve been doing all year and will continue for the next few years, we are balancing the priorities of both our fiber expansion program and the [EACAM] (ph) program. We are carefully planning and engineering both programs to keep them progressing at a pace to meet our build commitments, while staying within our available funding.
In closing, I want to thank all of the TDS Telecom associates for their focus on our strategic priorities, including caring for our customers and communities and carefully managing our spending.
I will now turn the call back over to Colleen.
Colleen Thompson
Okay. We will now open up the call to questions. Operator, we’re ready for the first question.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. Your first question comes from the line of Ric Prentiss from Raymond James. Please go ahead.
Vicki L. Villacrez
Hi, Ric. Ric? Okay. Let’s go to the next one.
Operator
The next question comes from the line of Sergey Dluzhevskiy from Gamco Investors. Please go ahead.
Sergey Dluzhevskiy
Good morning, guys.
Vicki L. Villacrez
Good morning.
Sergey Dluzhevskiy
Couple questions for LT, about the tower business. Maybe just the first one, a broad question. As you look at your tower portfolio pro form for T-Mobile transaction closing, I guess, at high level, what are the strengths in your opinion of this portfolio? What are some areas of improvement? And what would be the main selling points to potential allocators as you market those towers?
LT Therivel
Yes. Good morning, Sergey. Thanks for the question. The strengths I think really are evident in just the portfolio of the towers themselves. We’ve provided detail in the past about our tower portfolio. One, geographically diverse and geographically attractive. What do I mean by that? There’s relatively few competing towers within a mile, 1.5 mile, 2 miles, 3 miles, etcetera.
They’re towers that are geographically unique and over time that will be attractive to co locators particularly as people have to densify their networks. It’s not cost effective to try to put up a new tower right next to where a tower exists today.
And so that geographical uniqueness, I think is a key driver of the attractiveness of the portfolio. The opportunity is simple, which is simply to grow our co-location rates. One of the things that if you do the math on the margins around the portfolio both current and forecasted in the information that we provided in the investor presentation, the expenses that underpin these towers are quite small, right?
There’s not a whole lot of expense in running this tower portfolio. And so the entire driver of the delta in profitability between ourselves and some of the other larger tower players in the industry is driven by co-location rates.
So, as we increase those co-location rates over time, you can expect those margins to steadily increase and that’s both margins and that’s cash flow that drops straight to the bottom line. So, that’s why we’re optimistic about this segment. It’s both an attractive asset and we think that we can grow those co-location rates steadily over time that will improve the financials.
Hopefully that answers your question, Sergey.
Sergey Dluzhevskiy
Great. And maybe another more specific question on the powers. So obviously, T-Mobile signed a new MLA to be a tenant on those incremental 2015 towers. But the exact selections or full list of their exact selections won’t be known for some time. I think you indicated until 30 months at the transaction close. So, depending on their selections, the overlap with towers with other tenants, could be, I mean, it could differ and you might end up with between 800 to 1800 towers without co-locators.
So the question, I guess, between now and then, how would you be planning for this transition? To what degree would you be able to market those towers? And how would you balance kind of having those towers without co-locators and looking to market them versus decommissioning some?
LT Therivel
Yes, Sergey. So, you mentioned the uncertainty around the towers that T-Mobile will be on. It’s an interesting financial equation that that creates for us. Right? Because it once we know which towers they will be on, what if the result of that is that the majority of towers that they’re on do not have an existing co-locator, that creates more attractive long term growth potential, but it somewhat impacts margins because you now have more towers with simply one co-locator on it.
If instead they end up on towers where we have current co-locators, meaning there’s a larger majority of the towers they select are where we currently already have a tenant, that will create better margins, but it will mean that we have more naked towers at the conclusion of the transaction. And so we’ll have to determine what we do with those naked towers. I do not think it is a foregone conclusion that those naked towers will necessarily be decommissioned.
We have a lot of different things that we can do with those towers, and we’re going to work that out in the coming months and coming quarters as we get more transparency into T-Mobile’s plans. Nothing that I just talked about impacts the way that we are marketing that tower portfolio to other potential co-locators.
So, what we’re not trying to do is to gasp which towers they’re going to be on and consequently prioritize or deprioritize those towers in our marketing efforts. It is full speed ahead in terms of marketing our entire tower portfolio to other potential co-locators and we have steadily improved that co-location rate over time completely independent of the T-Mobile deal. And you can expect that to continue and we’re going to continue to try to get more co-locators on our towers.
This is an environment and we kind of mentioned this somewhat in our earnings comments. I mean the environment right now for increased tower co location is just slow, right? If you look at our capital spend, our approach as a wireless business to capital spend is quite similar to the approach in terms of capital spend from other players in the industry.
People are on the back end of their mid band rollouts, the back end of their 5G rollouts and so overall capital is down and that affects the ability to put new towers into place and to get new co-locators. But I firmly believe this is a temporal phenomenon. What you’ll see is capacity needs for the industry, are going to continue. Nothing that I’m seeing in the industry would indicate that the demand for mobile data is going to slow. And because we don’t have in the industry, we don’t have an active spectrum pipeline, right.
There is other than what we’re out there marketing, there is not a whole bunch of spectrum out there to be had and what that’s going to cause over time is it’s going to cause wireless players to have to densify in order to support this capacity needs, because there isn’t an obvious spectrum pipeline to support it.
And I expect that that densification will likely happen even before 6G and the increased densification and the new spectrum that’s going to come into play in 6G. And so in the long run, right, we’re bullish about the opportunity to grow that co-location. And so that’s why we’re marketing those towers very aggressively out there to other co-locators and that will continue completely irrespective of where T-Mobile lands and which towers do it.
Sergey Dluzhevskiy
Got it. Great. And I guess one question on the wireless segment. So obviously, you had an improvement in postpaid phone subscriber losses. At the high level, I mean, if you had pinpoint two or three drivers of that, what are some of the initiatives that work for you in terms of those improving trends? And what are your expectations kind of for back half of the year in terms of those initiatives?
LT Therivel
Yes. It’s a pretty simple equation. If you can improve churn and improve your gross adds, you generally going to improve your net adds. And so we talked about Us Days during my commentary. Us Days have been an effective method of reaching out to our existing customers getting them back under contract and so that’s helping with churn.
And we’ve been aggressive in the market when it comes to our postpaid offers. We have offers in the marketplace right now at a price point that’s really attractive to customers. We’ve removed trading requirements and we’ve many times removed plan mix requirements. And so those are attractive offers to customers that are helping drive improved gross ad performance just in terms of share of gross adds.
Now the switching pool is down, but not notwithstanding the switching pool being down, we see our share of gross adds improving, which is an impressive accomplishment if you think about the overhang of the deal.
You can expect to see us continue to be aggressive in the marketplace. We’re not taking our foot off the gas pedal when it comes to investing in existing customers, so in those retention offers bringing churn down. And you can see us continue to invest in aggressive promotional offers to get new customers.
And so that’s going to be full speed ahead for us for the rest of the year. I think you can probably what you’re seeing in the marketplace right now, I don’t think we’re going to be backing off of that for the rest of the year. And so, I’m cautiously optimistic that we can continue this momentum that we have right now.
Obviously, we operate in a — we mentioned this, right, we operate in a highly competitive sector. I do not expect our competition will be standing still. And so we’re going to have to adjust accordingly. But yes, I’m pleased with what we’ve been able to drive both on retention and on gross adds.
Sergey Dluzhevskiy
Great. Thank you. And my last question is for Michelle on TDS Telecom side. We’re seeing wireless and wiring companies partnering with infrastructure funds or private equity to the fiber deployments potentially at a more rapid rate than they would be able to do on their own and keeping those builds old balance sheet.
I was just wondering if you could share your thoughts on such opportunities to what degree those structures are relevant to you, how attractive are they to you and your markets? And what are some of the factors that might lead you to lean into those structures over time or not?
Michelle Brukwicki
Hi, Sergey. Thanks for the question. I’ll comment briefly and then Vicki may want to add in as well. Over the years as we’ve developed our fiber program strategy, we have considered lots of different financing alternatives that can help us advance our strategy. So, we have been open to various structures and we’ve evaluated a variety of things really.
And where we’ve landed is that we’ve had some really good success with some preferred equity issuances over the last couple of years. And right now we’ve been funding this primarily through debt.
But we continue to be open to different types of structures and whatever would be best for the enterprise, I think we would consider, various alternatives. But it has to be the right thing for the whole enterprise.
So, Vicki, do you want to comment at all?
Vicki L. Villacrez
Yep. Good morning, Sergei. Right now, we are very focused on the deals that we have in front of us. The transaction with T-Mobile and UScellular wireless business as well as the transactions at the TDS level. And that is where our focus is at right now, including monetizing the remaining spectrum that was not included in the T-Mobile transaction.
So, that’s where our focus is at, we’re really pleased with where we are at with our leverage at the end of the second quarter. We’ve improved leverage both at the UScellular and the TDS consolidated level.
And as you heard in my prepared comments, we are in a good position, from a liquidity standpoint to fund our fiber program as we go forward the remaining of the year and into 2025. And so that’s where our focus is at. Very pleased overall with the strong growth that we reported in the quarter. TDS Telecom had strong top line as well as bottom line growth. And that really is, driven from the investments we’ve already made.
So, the company is just very focused on broadband penetration, penetrating into the new households that we’ve enabled with our capital investments over the last year.
Thanks, Sergey. Thanks. Next question please.
Operator
The next question comes from the line of Ric Prentiss from Raymond James. Please go ahead.
Ric Prentiss
Thanks. Sorry, I had double secret mute on. Can you hear me now?
Vicki L. Villacrez
Hi, Ric.
Ric Prentiss
Okay, good. Thanks. Hey, yes. So, first question, I’ll follow-up on Sergey’s obviously a lot of discussion about convergence fixed with mobile, maybe from both LT side, Michelle’s side and maybe even Vicky side. How are you all viewing convergence kind of theoretical and then specific to your operating units?
LT Therivel
Yes, Ric, I’ll start maybe I’ll hand it to Michelle afterwards because my threat is her opportunity, right. So, as I view convergence, it is clearly a trend in the marketplace. You see it from the success that cable wireless has had in the market in terms of growing share, right there, their market share for cable wireless is still significantly below their share of gross adds. And we are an industry where market share generally reaches equilibrium at whatever your soda is.
And so, there’s still a lot of room for them to grow. And why is that? I mean convergence is a word that means different things to different people. Maybe I’ll simplify it and just talk about fixed wireless bundling. If you’re able to use the profit stream from one product to help subsidize another and it can help you with churn, well then that’s a good equation.
And that’s something that you see not just the large cable players doing, but the small cable players doing. And so, as we forecast forward where cable is going to be in our footprint, we see an expanded presence of cable wireless in our footprint and that’s not necessarily because of expansion of the big guys, it’s because we think that the smaller cable players TDS Telecom included will start to offer a wireless offering in order to help bring churn down and in order to either differentiate their wireline offering or just keep pace with the big guys.
And you also see that in the strategies pursued by the larger wireless players. I’m speculating here because obviously I don’t know why the cable players or why AT&T or why T-Mobile or anyone else does what they do. But if I look at my speculation and you say, okay, well, T-Mobile is out there, expanding fiber footprint, AT&T has been very public about their desire to expand the fiber footprint.
Why is that? Well, it’s because of the power of these bundled offerings and these converged offerings. So, this is something that our scale makes it challenging for us to do. There are opportunities for wireline players to provide wireless services because there’s a wholesale wireless offering. Wireless players do MVNOs. And there is not a commensurate wholesale approach to wireline. I don’t have access to nationwide wireline wholesale offers. So, it’s very difficult for us to match those bundled offers.
Do I think that every single customer in the U.S. wants a bundled offer? No, I do not. So, I think that there is some kind of a threshold out there for this market, but it’s a threshold that still has a lot of room to grow. And so, we do view it as a threat to our business. We’ve been very transparent about that in our earnings calls in the last quarters years frankly.
And so, yes, it’s something we keep a very close eye on. We think we can compete effectively with it from an aggressive price point perspective and a high quality network perspective and so on. But it’s definitely a competitive threat. And my threat is Michelle’s opportunity. So, Michelle, maybe you can talk a little bit about how TDS is looking at it.
Michelle Brukwicki
Yes. Thanks, LT and thanks for the question, Ric. Actually, what LT said I wholeheartedly agree with. So, from a TDS Telecom perspective, we are very excited to be getting into this space. As LT mentioned, this is a great opportunity for us. But it is important to make sure that we level set on the definition of convergence. We also see this as more of a bundling.
We do not believe that you have to own both the wireline and the wireless network to make this work, but it is more of providing attractive bundling opportunities for the segment of our customers who want to buy both services from the same provider.
And we’ve looked at the MVNO market for many, many years. Our team has done analysis on this for a long time. And over the last couple of years, it’s really started to make sense because of what else he mentioned is that this ecosystem has developed where there are now, relatively easy ways for wireline companies to get into this market and be able to offer wireless through wholesale agreements.
And we’ve signed up with the NCTC, so the National Content and Technology Cooperative, through their — an industry group who established partnerships for companies like us to be able to join in and participate in a relatively straightforward way.
So, the ecosystem developed, the economics developed, the customer demand developed over the last few years. So, we think that this is the perfect time for us to get into this market and be able to round out our product and service set, in order to really meet the needs and the demands of the broadband customers that we’re selling to. Yes, well said.
Ric Prentiss
A couple of other questions from my side. One of the other hot topics this quarter is the next generation iPhone. What might be an AI, push? Maybe some opinions on is AI ready for prime time and wireless? What does it do to the competitive intensity? Switcher pool, subsidies, and kind of what’s baked into your guidance, so an overarching AI phone question?
LT Therivel
Hey, Ric, I think I would tackle it in one of two ways. I think on the revenue side of the equation, it’s too early to tell. The last Samsung device had some really attractive AI capabilities built into it. I think they’re awfully cool. I think a lot of our customers think that they’re awfully cool. We haven’t seen a massive change in market share right to Samsung with those capabilities.
So, I think that’s still a work in progress. And obviously Apple has made some announcements, but we don’t yet know what those capabilities are going to look like. And so, we aren’t projecting in our numbers any major shifts based on AI and AI capabilities on the revenue side. I do think that where we are starting to see some interesting opportunities is on the cost side of the equation.
And so we’re already using AI and some AI capabilities in our care centers, education on next best offer, how to best link the various touch points of our customers across our enterprise, so we can serve them better, so we can have more effective care center interactions. I do expect over time that those kinds of capabilities will also transition into the digital space.
And so being able to better serve customers, being able to better manage costs, I do think that’s where you’re going to see more traction on AI in the near-term. I’m long-term very bullish on the capabilities that it provides on the device side, but I think it’s too early to tell when that’s actually going to show up in the numbers.
Ric Prentiss
Okay. Last one for me is on the spectrum. Obviously, several times, Vicki and everyone’s kind of mentioned that we’ve got more spectrum we could monetize, Kind of two-pronged question to the spectrum. If you were to move forward before the T-Mobile deal is approved and closed, what kind of transaction could you do with the Spectrum since the Spectrum is kind of inherent in how your customers are being served today?
And secondly, I think in the 10Q, it mentions that you guys assessed the impairment test of the wireless spectrum, what you’re selling on the wireless spectrum that you’re keeping outside of the T-Mobile transaction. And it came out saying that the carrying value, looks like you exceed your fair value on the balance sheet. So, just wondering is that an update based on kind of price talk or what that means?
LT Therivel
Yes, Ric, I’m going to punt a little bit on most of the spectrum questions, because we do have an active process going on. So, I’m going to probably stay away from some of the value related and process related questions.
What I can tell you is, I mean, we’ve specifically designed the transaction with T-Mobile to ensure that it is a smooth transition for our customers. So, the reason why we did a year lease of Spectrum to T-Mobile after the transaction, even the Spectrum that they’re not acquiring is so that we could make sure that our customers were properly served and it was a really good transition and that we saw no decline and no change in network experience for our customers.
One of the things we’ve worked on with T-Mobile is to ensure that day one, you see either no change or ideally a better experience. And we’re going to be bringing more spectrum to bear to customers and that’s not just to our customers, but to T-Mobile customers as well.
And so that portion of the transaction has been designed to make sure that it’s a smooth transition. For the go forward spectrum, I’m going to punt on that a little bit only because we do have an active process going on and it’s probably not appropriate for me to comment further on that.
Doug Chambers
Yes. With respect to the spectrum carrying value, every year well, at least every year we’re required to assess that for impairment. We do that in the fourth quarter. So, we do what’s called the step one accounting test and did evaluation that’s expected. The fair value was greater than the carrying value. So, we do have recent data on that that we use to make that assessment.
Michelle Brukwicki
As you know, Ric, as you know, any comments that we’d be making on this process would only be if we had a definitive agreement, that was signed and in place. So, we’ll keep you updated.
Ric Prentiss
Make sense. So, I think, LT, to your point, the customer experience is something that can’t be damaged. And so you factor that into the T-Mobile deal, it would factor into anything that might go on with Spectrum, maybe a safe way of saying it.
Michelle Brukwicki
Thanks, Ric. Next question?
Operator
The next question comes from the line of Jonathan Atkin from RBC. Please go ahead.
Jonathan Atkin
Thanks. Couple of questions about the Tower business. I wondered about when the dust settles, what would be your appetite to do build to suits? And secondly, the existing portfolio to what extent might require augmentation CapEx, given that when most of these towers were built, it was meant simply for UScellular as opposed to multi-tenant? Thanks.
LT Therivel
Hey, Jonathan. Welcome. Good to hear you. So, I mean in terms of build suit path forward for the Tower business that’s different from the strategy that we pursued. It’s not currently reflected in the projections that we provided. It’s not currently part of the strategy. It doesn’t mean you can’t change it, right. I mean, one of the things that we’re still working through is what is the right strategy and the right long-term path forward for that Tower business. We don’t know the answer to that yet.
That’s going to be something that we’re going to be spending time on in the coming months and the coming quarters. There’s no build to suit capital. There’s no build to suit revenue built into the projections today though.
And in terms of enhanced capital, so I guess, I think about it a little bit differently in that, when we built our towers, we didn’t build those towers with the idea of only having one tenant in place. We built those towers to provide a good mobile experience. What does that mean? We operate our towers in more rural areas on average. So, we have pretty tall towers, Alright.
We have a pretty tall tower portfolio, that enables us to provide broad coverage to rural America and that’s been kind of a key part of our long-term wireless proposition. What do tall towers enable you to do? Tall towers enable you to have space for multiple RAD centers. And so if you’ve got multiple RAD centers, you can add on co-locators, without a whole bunch of incremental capital and in fact without any incremental capital. And so that’s also reflected in the projections that we provided as part of the investor presentation.
So, a different way of answering your question is, I do think we have the opportunity to add co-locators, to add revenue, to continue to grow that Tower segment and to continue to grow the margins and the cash flow from that Tower segment without needing to spend a whole bunch of capital on our existing towers.
Jonathan Atkin
Good answer. Two more. Ground lease ownership, maybe just kind of level set us on where things stand and appetite for using capital, at least at some point to extend or buy ground leases to the extent that you don’t already want to control them?
And then kind of back-office types of activities associated with the tower company, lease administration and so forth, Are you where you need to be or are there improvements or enhancements that you foresee making?
LT Therivel
So, from a ground lease perspective, we have had a steady rhythm and a steady drumbeat of finding opportunities to take on ground leases that will continue. We don’t have a dramatic shift in our strategy there. It’s going to be continued and because of that you also don’t see a dramatic shift in the financials that we put forward. It doesn’t mean that we don’t look for the opportunities. It means we’ve been doing it and we’ll continue to do it as those opportunities arise.
From a back-office perspective, we think we run a lean organization. We did before the separation. We’ll continue to do so after the separation. That lean organization is reflected in the financials that we put forward.
The one thing I will highlight is and then you asked about work that’s ongoing. A number of the support functions to that tower organization are resident inside of UScellular, the wireless operating company, they’re resident inside of TDS, our parent company. And continuing to be able to work towards being able to stand that tower company up independently is going to be a lot of work for us in the coming quarters, but I don’t see that work adding incremental expense. It’s more let’s call it isolating it, right. So, it’s isolating it to the tower company as opposed to adding it incrementally to the tower company.
And so that isolation, that clarification of, for example, if you were doing civil engineering work on the towers that civil engineering work currently may be being done inside of our wireless business that would be being done to support the Tower business moving forward.
It’s not going to add incremental expense. It’s simply clarifying that expense in our financial statements. And when I say clarifying, I don’t see that being a big change to what we reported, but it’s more the operational nuts and bolts of moving that work from wireless code to tower code, if that answers your question.
Jonathan Atkin
Thank you.
LT Therivel
You bet.
Operator
And that does conclude the question-and-answer session. I would like to turn the floor back over to Colleen Thompson for closing remarks.
Colleen Thompson
Okay. Thanks everyone for your time today. Please reach out to Investor Relations with any additional questions and have a good weekend.
Operator
This concludes today’s conference call. Thank you for your participation. You may now disconnect.
