Array Digital Infrastructure, Inc. (AD) Earnings Call Transcript & Summary

It's my great pleasure to welcome the TDS and U.S. Cellular teams. From the company today, we have Ted Carlson, the President and CEO; Doug Chambers, the Chief Financial Officer of U.S. Cellular; Vicki Villacrez, the Chief Financial Officer of TDS Telecom; and we also have Jane McCahon, the Head of Investor Relations. So welcome, everybody. Thanks so much for your time today.

We came off a good set of results. The stock has reacted well. We've got a lot to talk about here. But maybe, Ted, I could start with you. One of the big news items of the year is Ken Myers is retiring, and you've brought Laurent Therivel in as CEO of U.S. Cellular. So it'd be great to perhaps talk a little bit about what he brings to the table and what you are looking and the Board are looking to in terms of his priorities going forward.

Yes, Simon. Well, thank you for having us here today. In terms of what he brings to the table, he brings tremendous experience with AT&T in a number of different wireless capacities. He ran a significant region, I believe it was North and South Carolina for them. He was on the strategy team that developed the -- I think it was the introduction of the iPhone at AT&T, doing strategy for them. He was instrumental in their B2B business, both wireless and wireline. And he was the CFO of one of their major business units before he took on the very significant position of making their operation in Mexico really hum along, which he did for over a year and with some 18,000 employees reporting to him. And before that, he had significant experience with a start-up. But before that, 4 years with Bain where he was a case team leader. So he's not only an operator, he's a strategist. And I'm delighted that he was willing to join us and looked at U.S. Cellular as a favorable opportunity in his own development. He's young. So he's got lots of runway ahead, and we're looking forward to great things over many years to come. In terms of priorities, really two priorities. The number one priority is getting growth and strong growth at U.S. Cellular. And of course, that would mean customer growth and also revenue growth. And the secondary priority is increasing our return on capital in the context of continuing to have a strong network. So I think that those are broad guidelines, but we need to give him flexibility to maneuver. So that's what he's got.

Is there anything -- that's a great summary. Is there anything you can kind of point us to, to kind of watch this space, things that you're already seeing him implement or areas where he should be focused on in the next quarter or two?

Well, I think one of the things that he believes in very strongly is localization, adapting the plans, the distribution, the network, the pricing to what the needs of the local communities are. So I think you're going to see more differentiation by U.S. Cellular based on local community needs. And I think you'll see over the medium term more emphasis on B2B where we're kind of under-indexed or significantly under-indexed at U.S. Cellular compared to the consumer postpaid and more emphasis on prepaid where, again, we are under-indexed at U.S. Cellular compared to our market share in the postpaid world.

Right. So I'm going to come on to the individual business units in a minute, but maybe you if had a couple of sort of overarching views on COVID and how the organization has stepped up and where you see the implications of COVID, the new normal, if you like, over -- for the industry and for the company?

Well, Simon, I was amazed at how well we adapted to work-at-home environment. So let me state that first. I mean our employees, our associates did a wonderful job of adapting. And I give particular credit to our IT departments for being able to set up people at home to work rapidly and with high security. So that's -- it was an amazing job that they did. In terms of our businesses, our businesses in some ways are actually stronger in this COVID environment than we had anticipated. Because people realize that their broadband service, whether it's developed over wireless or over wireline, is essential and it's particularly essential when you're working from home because you've got to communicate. So connectivity is even more important than it would have been when you were at the office where you could just go down the hallway and talk to someone. So both businesses are benefiting from that. And I think that having customers once realized how important connectivity is to them on both sides, wireless and wireline, I don't think that that's image of importance is going to go away very rapidly. I think it's going to stay with us. And usage went up quite a bit. U.S. Cellular usage I think was up 70% in the second quarter compared to a year ago. Now some of that may back down once we all get vaccines, but it's still going to be much advanced from where it was a year ago. And I think just on the U.S. Cellular side, more and more people see the need for the unlimited plans, which is a good thing because the more people use, the less likely they are to give it up. So I think it's going to mean very good things for the long-term prospects for our industry. We may get some more government support coming down the line to erase or -- not erase because it's hard to ever erase it, but to reduce the amount of rural-urban divide. And of course, we're mostly rural companies. So that could help us down the line. So I think this has highlighted the importance and necessity of our industry, which is a good thing.

Yes. Very good. It's definitely. It seems I have seen reputation scores for telcos have gone up quite a bit. I think people have been impressed with how the networks have held up in the face of this incremental demand. Another big change that we've had recently is the Sprint/T-Mobile merger we've been talking about 4 to 3 or 5 to 4 for years now. So I'd be interested in your perspective of what has changed? What do you expect to change in terms of the competitive environment in terms of having 3 large competitors now?

Well, actually, I think it's a very good thing for the industry because when you had 1 small less competitor, Sprint, that was -- had a high churn rate, really all they could do was -- would be to -- or not all they could do, but what they primarily focused on was price competition. And so getting a competitor out of the way who focused on the price rather than on the network experience or on the customer experience, I think is a good thing for the entire industry. I mean this industry should have been able, absent that low-priced competitor, to have monetized more of its investments in spectrum and network over the years. And I think we will have that opportunity as an industry to do more of that. And we're going to need to do more of that. I mean there's more -- there'll be more government auctions coming down the road, and carriers are going to have to step up without saying anything about what our intent is. I can't talk about that. But carriers have to step up and 5G is 5G. And 10 years from now, there'll be 6G and there'll be more investments to make. So carriers need the opportunity to be able to monetize their investments.

Yes. And I noticed you just issued a 2069 bond at U.S. Cellular was -- that gives you a good war chest because you already had a pretty well termed out balance sheet. But is that ahead of the spectrum auctions ahead of the CapEx that gives you some optionality there?

Well, it's a lot of optionality. I can't say what it's for. I'm not allowed to say that. But I can tell you it could be used for refinancing. I mean the interest rate was fantastic, 6.25%. We have some callable 7.25% bonds out there, also very long dated. So we could use it for that. As you say, we could use it in some upcoming spectrum auction or spectrum purchase. We could use it to accelerate CapEx. There are a lot of options, and we're not going to talk about which option that we're going to take right now.

Okay. And just to -- for those of you on the webcast, we do have the Q&A box at the bottom of the webcast, so feel free to ask questions during and then we'll try to get to as many as we can. A more detailed question on the wireless side. I don't know if Doug, you want to take this one, but we have the Keep America Connected plan ending. You had the pledge customers, yet, still, you were able to do wireless service revenue growth up year-over-year. So help -- maybe help us through the puts and takes as we come out of the Keep America Connected plan. What are you seeing in terms of bad debts payments and sort of return to normal with stores and activations and so forth?

Yes. So as I talked about on our earnings call, with the Keep America Connected Pledge, we ended the pledge on June 30 with 39,000 connections on the pledge. That's less than 1% of our postpaid being sold. That exceeded our expectations as far as the result. At the end of Q1, we thought we'd have more customers than that on the pledge. So as a result of that -- and we were very proactive during the second quarter and into July in working with those customers, administering some collections, getting them on payment plans. And as a result, as we sit here today, we have close to 80% of them on payment plans. Now that will play out over time. We'll expect some bad debts to result from that over time. But I would say the level of bad debts that we expect are less than we expected at March 31. So overall, we're doing well with the pledge. I think we were really bolstered by the fact that the state and federal unemployment assistance helped aid people that were in that situation. And as Ted mentioned, wireless is an essential service, people prioritize paying their bill and we have less people on the pledge than we thought we would. So that's a good thing. Now that being said, there is some risk on the backside with customers rolling off. But given it's 39,000 connections, that is a manageable risk at this point, and we're actively managing that.

Now that's great. And what was the hit from the Keep America Connected plan to your ARPU and your service revenues from less overage and no taxes and fees? Because I think Verizon had put it at 300 basis points, something like that. Were you in similar ZIP code?

Yes. When we look at our -- let's take our postpaid ARPU, it was about a $0.35 hit to our postpaid ARPU in Q2. So I think $4 million or $5 million that we had a reduced revenue related to the wave fees and the Keep America Connected Pledge. And just recognize that the pledge was something that we were compelled to do by the FCC, and we were also, as a business, it was the right thing to do. So we supported that. The overage fees were a voluntary action that we took, and we waived those through July 31. So that's -- that waiver persists a little bit into the second quarter but then ends.

Okay. And on the unlimited, I think Ted was talking about getting more people on unlimited plans. So remind us of where you are on migrating people to unlimited and what the uplift is as people move across.

Yes. So we're -- I'll take the second part of that first. The people migrating to unlimited may or may not have an ARPU uplift because we have a lot of legacy plans where people are coming from, some of which carry higher monthly charges than the various unlimited plans, depending on number of lines. So we don't necessarily see a lift from all customer migrations. We do see it when customers adopt our -- we have 3 levels. We have our Basic, Everyday and Even Better. We do generally see an uplift when we can get customers on the top 2 tiers, the Everyday and Even Better. So it's a mixed bag. What we have been experiencing is over the past, call it, 18 months or so, we had a lot of tablets in our mix, and we had a lot of -- as our tablets rolled off and we got a lot of churn on those and we had more handsets in our base relative to tablets, that was giving us an ARPU lift all the way through the second quarter, that's starting to wane a little bit. So we're not getting at such more reach in a steady state where we're not going to see that as much. But that being said, moving customers up the stack to our higher-value unlimited plans is something that we are focused on, certainly with our promotions and complying customers to take those plans as part of promotional requirements and delivering the higher value that's part of those plans is also part of that.

And what do you make of the recent move by Verizon to add ESPN and Hulu? Most of the big 3 now have video offerings in their higher-end plans. Is that something you need to address? Or do you think you can still have a good place in the marketplace without having content?

We're always looking at it. And as you may know, in our top 2 tier plans, we have an agreement with Redbox where Redbox rentals are included on those top-tier plans. But we continue to look at other content options. We don't think right now we have to have it, but that doesn't mean we never will have it. And so we're looking at -- we're always looking at options, the benefit to our customers and our product as well as the cost that we have to bear as part of that. So it's something we'll continue to look at.

Great. And so where are you on stores reopening at this point?

We're really -- all of our stores are open. So I think 260 retail stores, 450 agent stores. They're substantially all open. Now we do have closures periodically if we have a positive COVID test that we need to address with a deep cleaning. But by and large, we're open at close to 100%.

Okay. That's good. And I think one that we talked earlier about the upside surprise in the Q1 results. I think both connected devices and phones were better than expected. How much of that do you think was sort of COVID-related, buying routers and so forth? And how much do you think is sustainable into the second half?

Yes. I would say -- well, clearly, the connected device lift, a lot of that was due to routers and hotspots and devices that businesses wanted as a result of COVID. I think how long that persists is dependent upon how long we're in this state of working at home and dealing with the pandemic. So as things open up, I would expect that the connected device lift is going to subside somewhat. I just really can't predict at this point where -- when we're going to come out of the current semi-lockdown state that we're in.

Okay. But it's kind of a -- it's mostly a lower churn. I guess activations remain somewhat subdued but churn remains well controlled, right?

Yes. And I think you saw that in our Q2 results.

And where are you on cable? Because I think that had been a little bit of a kind of a challenge in 2019 and Charter, in particular, had strong wireless adds this quarter, but it seems like maybe that's not as much of a factor recently. Is that right?

Yes. I would characterize cable as they're fairly consistent from '19 to '20, maybe even a little bit -- picking up a little bit in 2020. As a reminder, we compete against -- because of our footprint, we compete against cable in about less than half of our markets. So I think Charter, about 1/3; Comcast, 7%, 8% of our markets; Altice, 4%, right? So we don't see cable everywhere. Where we do, they're certainly competitive on the lower end with their per-gigabyte plans and the factors. So we're watching cable. I mean in our markets, Verizon and AT&T are still the most formidable competitors. But cable is there and it's something we have to be mindful of. We continue to watch and there -- it's something that we feel like we compete against effectively, and it's more of a risk in the low end, but we have to continue to stay on top of it.

And there is a question here. What do you see in terms of overbuild activity from T-Mobile? They're -- they've obviously got a big commitment to the FCC. It seems like they're starting in the big metro areas, adding 2.5 spectrum. But is that something you're seeing or expecting?

Expecting it, yes. We are expecting it. I would say, to date, there's been -- it's been steady. There's certainly building in -- more in some of our areas. But there hasn't been a dramatic increase in Q2 and through today's state that we've observed. We certainly do expect that based on what you mentioned in the buildout of midband, and we're ready for it. We've been in our markets for 30 years plus, and we have a great position in our markets, and we're expecting it and we're ready for it.

Okay. And that plays in a little bit to this roaming question. We had a note earlier this week, roaming was really tough for a lot of the wireless carriers. In U.S., Canada, Europe, Asia, you probably did better than most. And I'm guessing that's a little bit because a lot of it was domestic roaming and driving rather than flying. But -- and any comments on the resilience we saw there?

Yes. I mean roaming is -- well, first of all, the third quarter is a great quarter for roaming because of seasonality. But 2 dynamics that we're watching in roaming, I mean you have the persistent trend of traffic increasing, data traffic increasing, that's helping roaming recognize that rates are decreasing due to some of the reciprocal rate agreements we've entered into, which are helping us greatly in the outbound side. But 2 trends to watch. One is with COVID, there's less -- we believe less traffic due to more stay-at-home, stay-in-your-territory behavior. The other thing we're experiencing that's a headwind, it's somewhat permanent nature is that T-Mobile is migrating the Sprint traffic to the T-Mobile network more quickly than we anticipated. So some of that traffic goes away. The traffic that does remain is on T-Mo's network at a slightly lower rate from our perspective. So those -- both of those things are impacting our roaming revenue.

Okay. And did you see that in Q2 or is it more of a Q3 effect?

We saw it in Q2. And it's continuing on into Q3.

Yes. I think they said 10% of their traffic was already on the T-Mobile network. They got a lot.

Right. They're moving fairly quickly on that.

Yes. Great. I think Ted was talking about the cost side and the opportunities there. I think when investors look at U.S. Cellular margins, they see an opportunity, the discount to the peers. So any particular projects you'd like to call out there to enhance profitability?

Yes. I guess the one I would call out since -- and we initiated this in 2017, it's been going strong over since a very formalized cost program. We have it divided into 9 campuses across our business, very comprehensive. And that -- in the first 3 years through the end of 2019, that delivered a cumulative amount in excess of $500 million of cost savings. So that's been -- when you see our results and operating cash flow increasing in Q2, a big part of that is initiatives that we have implemented as part of that cost program. We're still very focused on that, still working that really hard throughout 2020. We're going to continue that into 2021. And we have to based on our businesses not growing at the rate we'd like it to. We're certainly working on that side of it as well. But we just have to keep working on costs.

Okay. And what's your expectation for this iPhone cycle? I think you look at upgrade rates and churn rates, people have a lot of old iPhones and Android phones in their base as well. And obviously, it's a strange time with the virus and everything, but do you think that we're going to see a pickup, a pretty decent upgrade cycle and potentially switching cycle, I guess it's now Q4 when they'll have new phones?

Yes. We're readying ourselves for that because it's really difficult to predict what's going to happen as far as because there's 2 countervailing forces. There is the pandemic where people are staying put. But that also may be resulting in some pent-up demand for switching, plus the Apple release is -- one, it's the Apple release; and two, it's 5G where we suspect it will be, right? So those things are going to -- that's likely going to result in a lot of switching and adoption of new devices. So we're preparing for that because we want to make sure we get our fair share and more of that switching pool upon the various releases for Apple. And overall, I do think there's going to be a lot of a high adoption rate for the new devices. And that combined with just -- notwithstanding Apple, 5G devices coming out, being released in Q3, Q4, there's a lot of mid-tier devices in the $300 to $800 range. That really -- the barrier of -- that maybe we thought a year ago that for 5G devices are going to be too expensive to motivate people to switch. I think that's gone because clearly, the device price is not a barrier.

Good. Yes. And you had some news on 5G with earnings. I guess you're going to Phase 2 now, another 10 million POPs or so. Maybe just update us on how many POPs you have today. And what's the timing for getting that coverage out to the next POPs and across your entire footprint.

Yes. So we started the 5G low-band rollout in 2019, as I believe. So that continues through 2020. It's going to continue...

Is that 600? What frequency is that at?

Yes. 600. That's correct.

Yes.

And so that throughout 2020, it's going to continue in 2021 and beyond for several years. But it's very much weighted toward a couple of things we're doing. We started in Wisconsin and Iowa. And we're also very focused on the higher traffic sites first. And so doing that in Wisconsin and Iowa, and then, as you mentioned, wave 2 started, which is the same strategy, getting the higher traffic sites first, and we're going to wrap that up -- wave 2 ramps up by March 31, 2021. At that point, once wave 2 is wrapped up, we have about 1/3 of our cell sites done across our network, okay? But that 1/3 of cell sites is more than half the traffic, okay? So it's really front-end loaded as far as caring for our traffic volumes.

Okay. Great. And there's a question coming in here. What is the millimeter wave strategy? Is that where fixed wireless comes in? And is millimeter wave going to be important for smartphones?

Yes. So we're starting millimeter wave in earnest in 2021. And so a few things there. One is we're going to be testing our fixed wireless product on millimeter wave in 3 markets in 2021 to learn. We want to understand the adoption rate of that product, who's adopting it, where it's successful and what type of market sets and so forth. The millimeter wave, let me start with the 600 megahertz strategy I just talked about. We're implementing that at substantially all of our cell sites. And so that's a network-wide implementation. Millimeter wave is going to be much more selective in areas where there's density that justifies millimeter wave and a traffic pattern where that capacity is needed as well. And so when you think of our network millimeter wave is going to be -- right now, the plan is less than 50% of cell sites and even -- that definitely south of that. And the way we look at fixed wireless on top of that, this is really our hypothesis with how we're going to get a return on investment there is we're really going to start millimeter wave to get a return on mobility. That's where it starts and in the way of our mobility product, reducing cost per bit. And once we have millimeter wave in our network, then we're going to look at, okay, where is it? Where can we roll out fixed wireless? And the real key to earning a return on that is that fixed wireless is just going to ride on top of that investment without any incremental investment and every additional subscriber we gain in fixed wireless is to the good, okay? So our initial plan is not to build out millimeter wave exclusively to support fixed wireless. It's really going to ride on top of what we're already building out for mobility. So when you think about our return on investment for fixed wireless, I think that's important to keep in mind. Now as we do our test and learn in 2021, maybe that changes, but that's our initial thought.

Yes. I mean it seems like that's where Verizon evolved over time, started a little bit more specific builds, but now it's much more of a joint build. And help us just think about your demography. It's obviously a lot of rural markets, but presumably, there's some dense urban communities that you can target where the propagation is going to work pretty well with millimeter wave. So is there any way to kind of size what that opportunity? Or how many POPs do you think might be addressable by millimeter wave and fixed wireless?

Yes. We haven't isolated that. We have a rough idea of how many sites we're going to. I would say from a POP perspective, it gets a little tricky, as you know, as far as propagation in millimeter wave signal and where you're reaching. So I just don't have that rich of detail at this point in time.

Okay. So another highlight of the quarter was your tower revenues. I think they were up 16%, something like that. And LTE was talking about sweating the assets. So perhaps you just give us an update on what the trends are there and what the opportunities are.

Yes. I mean so I think you may more -- our tower tenancy ratio is still at about 1.4 and that includes U.S. Cellular as a tenant, right? So if you take us off there, it's 0.4. That compares to like 2.5x for a tower company. So we still have a lot of upside as far as what we're able to lease-up on our towers. And so that's a really nice opportunity for us. Obviously, the growth rate is trending the right way. We're up in the double digits. And that's positive as well. So a lot of upside with towers. And as we mentioned many times, also a very strategic asset to own those towers as we do the low-band rollout, millimeter wave, midband is in the plans. It's a lot of touching of the tower and having control of the tower, not having to pay for leasing up more space for all those different upgrades is a real advantage for us.

Yes. Great. And this may be a question for Ted, but it's coming in why not monetize the towers? What's the current perspective on that? We've got tower valuations at 30x EBITDA. Is there a way to surface value better than the market is giving you credit for today? And I guess it also applies to the wireless partnerships.

Well, we've looked at that, Simon. And the analysis tends to come back that the inherent internal rate of interest that we would pay to monetize the towers is somewhere between 7% and 8%. So when you compare that to the 6.25% that we were just able to get into the market for -- with 49 years, the tower sale and leaseback is actually a more expensive form of financing. That's just thinking about it from a simple financial standpoint. When you think about the upside that Doug talked about, if we can grow from 1.4% to 2.4% -- I haven't done the math on what the additional value of our towers would be. But I mean this would -- if we can grow at 16% a year, this is not the time to monetize them. The time to monetize them is after we've got them up to that 2.4%.

Yes. Understood. And any interest from your wireless partners on buying your interest out in the partnerships?

Well, I can't comment on specific interest. Over many years, there has been some interest, but I can't comment on recent interest. But I would say this that there is a significant tax. Even with the NOLs that we're building up, there still would be a meaningful tax if we monetize, if we sold those. And as the tax rates have been reduced under this administration, you could say, well, the tax rate isn't as high. So you ought to sell them now while the tax rate is low. But the fact of the matter is that the -- what we're earning off them also gets taxed at the lower tax rate. So we're actually earning more now than we would have under a different tax regime. So they're just -- it's a puzzle that we haven't been able to solve. In the meantime, it's not a bad thing that we haven't solved it because the revenue and the earnings that we're getting from those partnerships continues to grow. I mean the biggest 3 of them are all run by Verizon. And Verizon, as you know, it's had increasing margins and revenue growth. And we've experienced that in those 3 largest partnerships. So it's not a bad thing for the company from a financial standpoint.

Sure. Understood. Okay. Well, one last question, Doug, on wireless. So I think we were talking about prepaid earlier as an opportunity. Anything in the near term to improve momentum there we should be looking for?

Yes. What we're doing in prepaid is taking a look at our service pricing. We feel like there are some improvements we can make with service pricing, particularly thinking about multiline service pricing and prepaid. We focused a lot of our prepaid on device discounts and other aspects. And we really think where we need to focus is service pricing and getting more competitive there. So I would look to that as part of our strategy going forward.

Okay. Great. Well, maybe, Vicki, I can turn to you on the TDS Telecom business. Maybe we can start with COVID again. What's been the impact on your business? And where do we stand today in terms of return to normal?

Yes. Sure. Thank you, Simon. We're very pleased with the results for the first half of our year and very pleased with how quickly we're -- and effectively, we were able to respond to the COVID-19 pandemic. And as Ted said, I am truly amazed on how our employees quickly transitioned in this environment. We grew both revenue and adjusted EBITDA in the second quarter, and we made progress on advancing our fiber deployment strategy. And so as we started with the beginning of the year with our top priorities, those remain the same, and we continue to be focused on those for the rest of the year. So the pandemic, as Ted said, has underscored the need for the services that we provide. So specifically, as I think about the impacts on the first half of the year and as I look at the second half of the year, I start with broadband demand, which was strong in the second quarter with wireline connection at 6% and same-store cable at 9%, and that's despite our direct sales force not returning to door-to-door selling until June 1. And so we were able to see this initial surge. And now with our sales force back selling door to door, we're seeing lots of pent-up demand for broadband services, especially in our new markets. And I expect that to grow and continue through the second half of the year as we continue to enable fiber service addresses in our current footprint and in our new markets. Second, I would look to the residential ARPUs. They are up significantly in both business segments, partially driven by the movement to the higher mix of products that we saw for both broadband and video. And even in some cases, customers were taking landline voice services. And this is all as people are spending more time in the home. As Ted had mentioned and Doug I think commented, third, we're watching our networks, which have remained stable. Despite the initial spike of broadband usage, we saw an initial growth of broadband that was quite significant. And we have been investing in capacity where needed. But nothing too significant and all within our guidance, our CapEx guidance. And we're seeing significant savings from an employee expense perspective. As many companies are seeing, there's not -- we don't have the travel and entertainment costs, and I expect that to continue in the second half of the year and into next year. As I sit here and I look at the backside of the pandemic, certainly, as we look at the second half of the year into 2021, we're watching our SMB customers closely. They make up about 20% of our total revenues and some have reduced their services. Some are slower to pay right now. So that's a real watch point for right now.

And what about the pledge customers? How are their payment patterns going?

Yes. So in the second quarter, we recorded a $2 million reserve against revenue as we had -- as we were not disconnecting customers for nonpay and we were not charging our late fees associated with that. And so that was $2 million. And right now, as we started and resumed contacting these customers, we started that in the beginning of July, we're seeing a higher percentage of our residential customers I think in the 70% to 75% range right now, making arrangements to pay or get on payment plans to stay connected. The commercial sector is a little bit slower. That's been ranging between 50% and 60%, and that's why that is a watch point for us.

Okay. And we certainly -- you mentioned the broadband momentum. We've seen that across the industry. What do you think is the sweet spot now for speeds in terms of the take rates and people upgrading?

Well, so from a speed perspective, today, we're seeing about 1/3 of our broadband customers are now taking 100 megabit speeds or greater, and that's up from 26% a year ago. Over about 1/3 of our wireline footprint and in our largest cable markets, we're offering 1 gig speeds. And we're starting to see customers take those speeds as well. From a copper perspective, we offer 25 to 100 megabit speeds across our wireline copper markets where we're upgrading our copper facilities. And that is remaining competitive. So a key to our broadband success also includes our bundling with our other products and services. So we also offer IPTV, and that has helped keep our churn low.

Yes. Good. And are those numbers on the telecom side or on cable as well? You've seen different trends on the cable side?

The cable, yes, same. The -- on the cable side, we've also been very successful. I said we're offering 1 gig services across our largest markets. We've seen very strong growth, both in connections and ARPU, on the cable side on a same-store basis.

Great. And cord cutting has been a big theme in the industry in the last 6 months or so, wasn't quite as bad as period maybe when people are staying at home in Q2. But how do you think about how that looks going forward? And is there much margin there if you're losing some of these TV customers?

So on the wireline side, we're growing our video customers. We grew our video connections at 9% in the second quarter. And on the cable side, I expect to see that the declines that we've been experiencing slow. And that is all with the rollout of our new cloud TV product. This is a great product, and it makes it simple to find programming with a recommendation engine, a voice search engine that integrates the traditional TV context with over-the-top streaming video apps. And I -- it's a far superior product that we're going to be offering, and we are offering, we've rolled it across our cable markets. And so we hope -- we're looking to slow the declining trend in the embedded base of cable. From a cord cutting standpoint, we are -- we suspect we're losing some of the cable customers to cord cutting and also the loss of live sports at this point in time, and we're seeing some promo hopping between the carriers. But overall, again, we are expecting to grow our video connections on a consolidated basis this year.

Okay. Good. And on the sort of return to normal, have you -- are you back on full install mode going into customers' homes, et cetera? Was that disrupted much?

So we did not disrupt that at all. We -- initially, with the pandemic, 1/3 of our workforce goes in and out of customer homes. And for that -- for us, that was our top priority, number one, to keep them safe; number two, to keep the customers safe. And so we outfitted our field service technicians with the PPE, all the safety protocols that were put in place. And we even invested in self-service video techniques so that the technician could sit in the truck remotely and not have to go into the customer home for certain things. They could use a video camera assist within the customer home to minimize the time that they were in installing service. But for the most part, our demand went up and our service in the home went up. So it really drove some innovations to minimize the time within the home.

Great. Well, maybe we could talk too about the out-of-territory fiber builds. Sun Prairie is going very well. You've expanded in some new markets. Maybe just talk philosophically about the opportunity you see here and a question we always get is around the return on invested capital?

Yes. So we continue to be very pleased, very pleased with our out-of-territory fiber results. I'll start with the presales. From the presales standpoint, we start preselling within our markets before we start construction. We get a website up and going. We let customers know that we're coming in. And that is all playing to what is so important to our strategy of being able to differentiate. Market selection is so important. The market that we select to fiber overbuild is a key part of our strategy. We're looking for underserved markets that are growing and have a high percentage of single-family homes that demand our services. Second, the go-to-market strategy is very important. So we do preselling and then we have door-to-door sales. They go -- they are on the streets, they presell. And we start to understand our market share opportunity early on. And then we're very targeted in our marketing. We can do local marketing and community events. And then third, we differentiate with the superior products that we're offering. It's hard to compete against a broadband fiber -- a fiber connection. So let me just give you a little bit of status update on what's going on with our out-of-territory. As I said, we're pleased with the results. Our expectations on the broadband penetration take rates are ranging from 30% to 40%. And we have a really high conversion rate, a 90% presale to install conversion rate. So that's -- those are important metrics that we're watching. And as I said, with the return of door-to-door to the selling, our presales have quickly ramped up. We're currently installing service right now in both our new Wisconsin and Idaho clusters, and we remain focused on our construction throughout these communities. And we're really working towards commencing construction as well in Spokane, Washington. And that's where we just recently launched our presale activity. So we're watching that market. But overall, all of these markets that we're seeing, the results are all generally beating our -- meeting or beating our expectations and very much in line with what we saw with our trial market in Sun Prairie.

Great. And 30%, 40% penetration, that's within a couple of years I guess, is it? What's the right time frame for that?

Yes. Yes. I mean in Sun Prairie, we were quite high. I think within the first year of fully launched, we were reading -- reaching those high penetration rates. And the revenue growth that we're driving from this is so important. It's meaningful growth that's really helping to drive the top line growth expectations that we have for the year, which are in the 4% range.

Great. And of that, what percent do you think is coming from the telco DSL versus the cable company?

In terms of revenue growth...

No. In terms of the new -- the switchers, if you like, the new broadband customers, where are they coming from?

Oh, I see. Where are they coming from. In our new out-of-territory markets that we're going into, this is where we have not -- customers have not had a lot of choices. And therefore, the telcos have not been keeping up with their investments into their networks. And so they're not able to offer the upgraded broadband speeds that fiber delivers. And so we're certainly taking share from there and then as well as some from the cable company. But at the end of the day, I think that you've got cable and the fiber player share in the market.

Okay. Great. All right. And do you think the kind of the home -- the pacing of this fiber is going to be fairly consistent over the next several years?

So I expect to -- so through the second quarter, we enabled another new 25,000 service fiber locations. And that's out of a plan to -- we're looking to almost double that number -- well, yes, double that number in the second half of the year. So you're going to start to see it really ramp up. And the total program is quite significant. So the service address delivery is key and that will be ramping up over into 2021 as well.

Okay. Great. And we just got a few minutes left. I've got a couple of last questions for Ted. Thank you, Vicki. But one -- just coming back to one coming in on wireless. Doug, again, I think early in the year, investors were a little bit surprised with the rising CapEx expectation. So perhaps just update us on where we stand midyear. I think you kept your CapEx guidance, but what should we be thinking about in terms of the shape of CapEx over the next year or 2?

Yes. I mean, right? So we're at $850 million to $950 million for 2020. And we included it in our earnings release, the breakdown of that. And really, 40% of it is the 5G investment over low band. So thinking ahead to the 2021 and '22, I would characterize it as somewhat elevated CapEx. Remember, we're doing -- we're continuing the 5G rollout over in network modernization over low band, okay? And then we have millimeter wave coming in. Now VoLTE rolls off because we're done with that in 2020. And then eventually, we're going to hit midband down the road. And so we are in an investment cycle. That being said, back to we are watching return on capital and looking to improve that over time. So as we make these investments, we're also looking at capital efficiency and places where we can reduce it. All that being said, in an investment cycle, we're going to be in a little bit of an elevated position in 2021 for sure, and we'll have to see how that plays out as we continue through the rollout.

Great. Okay. So Ted, we've got an election in a couple of months here. And there's certainly I think investor concerns about regulation and the return of net neutrality and even price regulation if Biden was to win. So you've been through a few election cycles. How do you think about the regulatory risk for both sides of the company?

Well, I don't see a big risk for our industry. I mean if I look over at the wireless side first, I think America is very much on the page of believing that the free market represented by 3 national carriers, 1 additional potential national carrier is the effective way to regulate competition. Now that could change if those carriers all price is exactly the same with the same services and packages. But I don't think that's going to happen. I think the Verizon and AT&T, and I would imagine T-Mobile coming from their Deutsche Telekom heritage have struggled mightily for 20, 30 years to get out from under any kind of price regulation. So I don't think they're going to take the industry back in that direction. I think on the wireline side, the biggest risk I suppose would be in the areas where there is no fiber competition, where there's a relatively slow speed lathe. And we're really the only competitors to cable company. And I'm not trying to say the cable industry is at risk. But if I had to think about where is the risk the greatest, it's in those areas where cable has 80% market share and they really, really dominate. Now I think that's going to be relieved over time by fiber overbuilders. So we'll have at least 2 strong competitors. And I think with 2 strong competitors, I don't think we're going to see a heavy-handed regulation. In terms of net neutrality, if we get another change in administration and we get another flapback toward net neutrality rules, I'm sure that courts will get tied up again with that. I don't know that, that really matters because you already have some states like California and Maine with their own net neutrality even in a not net neutrality national environment. So I don't know that, that matters so much. I'm trying to think if there's anything else that I could see that would be a regulatory issue. Well, I would say this that if you consider taxes a regulatory matter, if the corporate tax rates go up significantly, I think that would tend to harm our industry, which does have typically taxable income. So that's the one area of real regulatory risk that I see.

Great. Yes. That's a good overview. And then just a couple of last ones on capital allocation. You've done some buybacks. You've obviously bought cable companies from time to time. You've got the minority stake outstanding in U.S. Cellular. How do you think about prioritizing those versus CapEx or spectrum purchases, et cetera?

Well, we're running an operating business. So we have to put our capital where the operations are, right? So network, spectrum, new fiber builds, I mean that's our priority. Now we did buy some stock back at both U.S. Cellular and TDS. At U.S. Cellular, we may have talked about this before, but we have to maintain a tax consolidation in order to optimize our tax situation with U.S. Cellular. So -- and the rest of TDS. So we need to maintain 80% ownership. So from time to time because we do issue stock in U.S. cellular for employee long-term incentive plans, we have to buy some stock back in. We took advantage of unusually low prices of U.S. Cellular stock to buy back maybe 1 or 1.5 years' worth of what we need to buy back in every year just to keep above that 80%. At the TDS side, the TDS stock price dropped to such a low level that it was -- well, from our perspective, I think it was kind of absurd. And so we took advantage of that. Now we didn't spend all the money in the world taking advantage of it, but we took some advantage of it. And I think that was a good thing to do under those very unusual circumstances. But normally, with the investment cycle at U.S. Cellular for 5G, including the spectrum that we bought and the investment cycle at Telecom with lots of opportunity to spend money and earn attractive returns with fiber overbuilding, I don't think you should expect that we would emphasize stock buybacks right now. And that, of course, would include buying back the U.S. Cellular minority interest in its entirety because that would be quite an expensive proposition.

Okay. Great. Well, we're just running up on the hour here. Ted, I don't know if there's any last points you want to make that we didn't cover on your long-term vision for the company?

Well, I would reiterate what I said at the beginning. I feel so much more excited about this industry, given all the video calling people are doing. And I don't think we're stepping -- we're going back from that. So this is a great industry. It's at the heart of American productivity. I mean it used to be about entertainment, right, video from home, but now it's about productivity from home. And the people we pull in our company, they don't want to go back to the office 5 days a week. They would prefer to work from home for 2 or 3 days a week, go back to the office for 2 or 3 days a week and have a balance. So I think we've got a kind of permanent shift going on here. We haven't decided what to do yet in our company, but every company out there is making that decision. And I think that likely decisions are going to be very favorable for both the wireless and wired industries.

Great. Well, that's been a great overview, Ted. Thank you, Doug, Vicki, Jane. We really appreciate your time today. And thanks to everybody listening, and thanks for your questions and stay safe out there and enjoy the rest of the summer.

You too, Simon. Thank you.

Thanks, Simon.

Okay. Take care.

Okay. Bye-bye now.

Bye.