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

Well, good morning, and welcome back to Citi's AppsEconomy Conference. For those of you I haven't met, I'm Mike Rollins, and I cover the communications services and infrastructure stocks at Citi. Before we begin, just a few housekeeping items. I'd like to mention that we have disclosures available to the right of the video player, as well as under the Citi Disclosures tab if you're viewing this through Velocity. [Operator Instructions] So with that out of the way, I'd like to welcome LT Therivel, President and CEO of U.S. Cellular; and Jim Butman, President and CEO of TDS Telecom. LT, Jim, thank you both for joining us today.

Thanks for having us, Mike.

You bet. Thanks for having us. It's our pleasure.

Well, the way we like to get the conference started being the beginning of the year is to ask you about your operating and strategic priorities for the new year.

So LT, why don't we start with you on the U.S. Cellular side? And Jim, we'll get to you on the TDS Telecom side.

Yes. Thanks, Mike. So our strategic priorities, no dramatic changes from last year. One of the things I've tried to communicate to the investment community is we do have a priority, from a financial perspective, around expanding return on capital. We focus pretty heavily on return on capital. We have a long-term goal of doubling it. That hasn't changed. and so the underlying drivers of accomplishing that are our operational priorities. And so you can think about that in terms of our postpaid business, stabilizing that postpaid business from a subscriber perspective and continuing to expand ARPU. Putting muscle behind our growth areas, 3 that we're focused on are our B2B business, our prepaid business and our high-speed Internet access business to-the-home. A third priority around that high-speed Internet access business is taking advantage of what I believe is going to be a substantive amount of government infrastructure dollars that are going to be flowing into the space and particularly into our footprint. And I'm sure we can explore that a little bit further in the conversation. We certainly have continued focus on expense discipline. And other operational priority for us that I'm sure we'll talk a little bit more about is our tower portfolio. We're interested in expanding that tower portfolio. We're putting a lot more muscle behind towers. And in terms of total number of towers, but also in terms of co-location, in terms of the revenue those towers generate. And then the final priority that I would -- I realize it may not be quite as germane for everybody that's listening in, but managing our talent. It is a war on talent like I haven't seen before. And thus far, we've been able to navigate it quite well, but certainly maintaining our talent and making sure our employees are happy, motivated, engaged, another key priority for me as well. Jim, hand it to you.

Thank you. Thank you. Well, Mike, we've got a 3-point very focused strategy at TDS Telecom to support our transformation to drive growth and returns over time. And the opportunity before us, in my opinion, is unprecedented. I've never seen anything like this in my entire career. So the 3 points of our strategy are: number one, we're broadband-centric in everything we do. Number two, we have a very thoughtful, data-driven market selection criteria of where we go and how we approach the markets. And third, much like what LT said, we operate lean. So let me just give you a little bit more perspective on these 3 strategies. When I say broadband-centric, 90 -- over 90% of our capital is spent on broadband, okay? It is on fiber networks in-territory, out-of-territory; broadband products, gig, multi-gig, the very best, much improved Wi-Fi experiences in the home; and then we've invested -- we still believe, and it's not in either/or strategy, we've invested in a cloud TV product that's really helping us get more broadband share. The second thing I want to talk a little bit about, our second part of our strategy is our market selection. I think this can be not appreciated how important market selection is. We've developed some very innovative software that as we look at markets, especially in out-of-territory, we can gauge very precisely how underserved the market is. We can tell what the cable company and what the telco is offering in terms of fiber and speeds, and we can get very granular on that. But in that market selection, we look at, obviously, the competition. We look for underserved -- growing markets, but underserved. Obviously, you got to pay attention to the cost, you've got metrics around cost per service address. And then we focus, sometimes, a little bit differently than other people that are overbuilding. We really focus on household formation. Household formation, families buy broadband and families buy gig services because they got kids gaming and they got big screen TVs. And then we also look for supportive communities. We are going to disrupt these communities. We're digging a lot of dirt, and we need to have very supportive, friendly permitting communities. And then lastly, our third point is operating lean. We've got a lot of technicians driving around in trucks. There's a lot of mileage being put on. You have to have a constant focus on efficiencies and effectiveness or your costs will get out of control. So we're constantly looking at that. We're deploying a software platform. Everybody knows Salesforce. We are deploying Salesforce because we've got multiple systems given that we've got cable, we've got ILECs and we've got out-of-territory. This will be what we call our single stack, and it will much improve the customer experience as well as it will help us bring a lot more cost out of the business. So in terms of, quickly, operational priorities for next year, generate top-line growth. Grow already high broadband market share in both wireline cable. We're scaling up our quarterly run rate on our build fiber addresses. That's a key metric. We will meet and likely beat, as we usually do, our market pre-sale targets in our out-of-territory markets. We're building a much larger funnel. We already have a big funnel of market opportunities to build fiber, but we're building a much bigger one because we see this opportunity, as I said, as unprecedented. And then we're constantly focused -- have a lot of focus on improving customers' experience with our products, self-service options, and leveraging the Salesforce platform. And then finally, much like LT, all broadband funding that comes available in the states or the federal government, we are ready and have people ready to seize that opportunity. Thank you.

Great. Well, that gives us a lot to unpack on both sides, the wireless and the TDS Telecom side. So maybe just to start off, we take this back a step. When you think about the strategy and some of the priorities that you've laid out, how should investors think about the opportunity for U.S. Cellular and TDS Telecom to grow service revenues at or above the industry level over the next few years? Which has been -- we take all communications that we track, over $500 billion. It's kind of in that 2% to 3% range. So how do you think about the opportunities for each of your businesses?

Why don't I start, Mike? So service revenues, let me unpack it for a minute and just talk about build revenues, and then I'm going to come back to service. From a build revenue perspective, I think we have an opportunity to grow faster than the industry. I mentioned our growth areas of B2B and prepaid earlier. We under-index in B2B, and we under-index in prepaid. And so if you think about our market share, obviously, it varies pretty significantly depending on geography. But average market share, you're kind of in the 17%, 18% range, whereas our B2B and prepaid market shares are south of 10%, right? And so we have the opportunity, I think, to grow our business revenues, grow our prepaid revenues at a substantive rate. And it's using assets and it's using capabilities that are already in place. And so it doesn't require a whole ton of investment, certainly not much capital investment to go grow those revenues. So even if you assume that postpaid grows at industry rates, these growth areas should accelerate us. The headwinds that we face when you now ladder up to service revenues come in roaming. So we do expect to see continued headwinds on the roaming side of the equation. As folks are continuing to build out their markets, as T-Mo and Sprint continue to bring those networks together, no different from what we saw last year. So it's something we've been very transparent about in our quarterly earnings. I don't see any necessary changes in that trajectory, certainly not towards the negative side. But it's a headwind that we face that is a little bit different when I start laddering it up to service revenue. So build revenue, I'm optimistic, especially driven by our growth areas. High-speed Internet we'll get into that. I think that certainly next year, that's still going to be a fairly nascent product. I think that's a longer-term value proposition and longer-term revenue driver. But next year, bullish on build revenues, service revenues that are roaming headwind, but no different from what we faced in the past.

You know, Mike, at TDS Telecom...

Jim?

We're a little bit of a unicorn. We've got cable operations and we've got our traditional wireline and then we're also on overbuilders. So we've almost got 3 segments, right? But I lump in our wireline in our out-of-territory, as our wireline business that we've invested, compared to our peers, very heavily and will continue to invest heavily. Many of them are declining. We will be growing. We are growing, and it will continue to increase in the growth over the next 5 to 10 years. And so from that standpoint, I got to kind of measure myself from that perspective. We will be a hit, okay? Now when we measure our cable operations that are going very well. We're at the industry indexes. We're growing alongside the cable industry in a very similar fashion. The last thing I would say, from an opportunity on revenue, this is just one that I think about all the time. I think broadband, the in-home broadband, is one of the best values you can have, right? For $50, $60, you play with -- that's your world of play, education, work, entertainment. You get your doctors' appointments done. It's unbelievable, you shop. The value that -- I think there's a lot of price inelasticity in broadband pricing. Now, obviously, there's competition. But I just think an extra $5, $10 per customer, you apply that to our base. That's real money so.

That's really helpful. I want to introduce our first survey question, which is what is the biggest threat to revenue and cash flow performance for U.S. Cellular over the next 3 years? Actually, I think in 3 to 5 years. And the choices that we're going to give our audience -- and these are confidential responses, so we're not tracking you. And if you are on the window and you see the disclosures, if you scroll down, the question window there for the survey should show up. And the choices that we'll give you is: T-Mobile's expanding its 600-megahertz footprint into U.S. Cellular's markets? Cable MVNOs taking market share? Updated pricing from AT&T and Verizon? DISH insurgency? Or other new entrants? So we'll see when our audience comes back. And while we're waiting for that to come through, Jim, let me come back to you. You made a really interesting point describing the systems that you have to identify, edge out and overbuild opportunities. So the 140-plus million housing units in the United States, do you have a size of, like, what the addressable market could be for TDS?

Yes. It's probably more than we will have capital to go after, definitely, okay. We're very bullish on it. I mean, the opportunity is significant. Now we're -- In terms of the size, we've scaled this thing up to say, in our window, we could go after 10 million type households. Or I should -- we have -- there's plenty of opportunities. Now here's the issue, though. The best opportunities are being taken, okay? And we're not the only ones doing this. And we are all looking at the markets and what we all are doing is planting our flags very quickly before someone else gets there. When we mark for instance, a Montana, buildings, that's setting a flag that people at least know, okay, there's an overbuilder in that area. So -- there's a great opportunity out there, and I think it's going to be around for a good 5 years, 6 years. But in the next 2 to 3, we want to get the very best.

And so as we're waiting for the survey results to come through, I'll ask both of you this question. If there's a certain size opportunity, and Jim, you referenced that there's only maybe a certain amount of capital that TDS has in the telecom business, have you thought about partnering with U.S. Cellular and actually building some of this out on the U.S. Cellular sleeve, especially if the wireless overlaps those areas...

No.

So LT could have the choice? Build fiber in some places and then use fixed wireless in other places, and have a more converged approach between the 2 businesses?

Yes. We've been motivated, and we've looked at that from an enterprise level. Usually, our footprints don't line up very well. That's part of the problem today. So we've looked at, for instance, where U.S. Cellular operates. We're very motivated, and looked at -- they're very dominant in the state of Iowa, for instance. The challenge is our metrics, when at least we've looked at Iowa, there's already numerous overbuilders that have gone to many of those communities. We're just like -- we don't want to be a for-competitor market from a broadband. It's a very capital-intensive business. Where it -- over -- where it can and we keep looking for it, we do it. For instance, in the state of Wisconsin, we're very dominant in terms of an overbuilder, okay, in many of the major communities around Wisconsin. LT and I have talked about, we don't need to put the unit or that business in U.S. Cellular, but we can do joint marketing. We can find ways to do that. Part of the challenge is all our priorities, right? I mean, if you only got -- if LT's only got Wisconsin, how much energy is that going to solve his broader bigger business problem? So it's been a bit of a challenge, I don't know. LT can also make some comments on this.

Yes, Mike, I think -- I mean -- you're -- the size of the opportunity that you're referencing somewhat comes back to your belief around the bundling hypothesis. I, frankly, am skeptical about how much value there is in bundling. A lot of that, I think, is you have to believe that there's huge churn benefits. My industry, I mean, we pay a ton of attention to churn. We're seeing churn tick up a little bit in the fourth quarter, but we're still looking at really low levels of churn. And so how much value is there really to driving churn down even more, versus the discount that you have to give away if you're going to go create a bundle. The alternative hypothesis, though, when there is some value here, is that on the cost side. So for example, right, if Jim is going and he's putting in fiber plant, and I can leverage some of that to go connect my cell sites, to go have a more comprehensive cost hypothesis, there's some value there. But again, then you get into the percentage of footprint overlap and how much value can you really squeeze out of it. The one wildcard here, and I think that Jim referenced this, and this is something that both of us are paying a lot of attention to, is this government infrastructure funding that's going to be coming in. Because now, all of a sudden, there's going to be funding coming into areas, right? There's going to be a geography where someone says, "Hey, I want to go cover this geography". And realistically, the way to cover that geography is going to be with some blend of fiber where it makes sense economically and other technologies, and I think it's primarily going to be fixed wireless where it doesn't make sense economically to put fiber. Well, in that case, if you're going to go compete for those government dollars either, right, the government come in that state, because it's the states that are going to be making the decision. The state comes out and says, well, we're going to allocate this much money to fiber and this much money of wireless and you have separate processes. My expectation, certainly from all the policymakers I've spoken with, governors, et cetera, is they're more going to say, hey, how much is it going to cost you to cover this geography? And it's going to require some form of partnership between fiber and fixed wireless. And I do think for opportunities like that, Jim and I have a powerful value proposition to bring. A lot of opportunities there, as opposed to just kind of thinking percent footprint overlap where it is relatively low.

That's really interesting. I want to come back to some of these thoughts in a moment. Let's get to our live survey results. And so interestingly, in terms of the biggest threat for U.S. Cellular, 60% roughly said T-Mobile expanding its 600 megahertz footprint. Cable MVNOs is about -- actually, sorry, I just ticked up in real-time, so almost 2/3 now is the concern on T-Mobile, and about 17% on MVNOs and 17% on AT&T and Verizon being the competitors. So LT, can you talk about the health of the wireless business? What's happening competitively? And how concerned are you about T-Mobile broadening its footprint? They've made no secret that going after the last 1/3 of their country to grab more share is a key focus for the merged company.

Yes. So Mike, I think it really depends on the time frame that you're looking at when you think about risks. I appreciate, by the way, that this time around, you didn't ask me the question and then ask the audience because I think we did that last time. And I think I said, well, one of my biggest concerns is cable and then something like 80% or 90% of the audience came back and said, "You fool, you should be worried about T-Mobile", so I'm glad that we flipped the order this time. I mean, look, I worry about all of them. I spend time thinking about all of them. I think if you just look at share of gross ads over time, in my footprint, the inroads are being driven by cable. T-Mo has put a lot of marketing behind it. They've put a lot of noise behind it. And I take them very, very seriously. They're a very well-run company, and I take them very seriously as a competitor. But when you spend a lot of time in rural America, and I do, distribution matters, network quality matters. There is an inherent skepticism in the part of a lot of our population that we serve, about promises of a great experience, and covering rural America is hard. We've done it for a long time. I believe we do it very well. It doesn't mean I don't think that T-Mo can do it, but there's a lot of proof points that I think have to be captured. And it's not just proof points around a map with some colors on the map, right? It's actually delivering quality network service and it's also delivering distribution, right? And I think that, that's a big hurdle that they have to get over, and I'm quite proud of where we stand there. But I think if I pivot to cable, I think in the -- if I say in the next, let's call it, 3 years, what is my biggest competitive concern, it is the increased expansion of cable and the wireless offers that cable provides. And right now, we probably have cable offers in about 50% of our footprint. Spectrum is the biggest threat that we face, and they have a compelling price [ point ] that we have to go -- that we have to go beat, or we at least have to go compete with. And I pay a lot of attention to that. I think in the long run, Mike, it's going to be difficult to do well in this business without owner's economics. Next couple of years yes, it's a threat. Near term, the most substantive competitive issue is the upgrade economics and the upgrade incentives that are out there in the industry right now. It's an expensive value proposition. I'm comfortable with how we're competing. We have the benefit of being a regional provider. And when I say the benefit of being a regional provider, a lot of times people view that as a scale of disadvantage. I view it as a flexibility advantage, right? I can go and test a bunch of different promotions and a bunch of different price points and a bunch of different ways to approach the market that my competitors can't do because they have contiguous footprint, and I don't. And so just to use the holidays as an example, we spent a good part of the second and the third quarter testing a variety of different options so that we came into the holiday season, so we came into the iPhone launch season feeling good about what we were putting into the marketplace. And we weren't guessing, right? It was based on actual market results. So I think we can compete well. But if I were to stack up the competitive threats, I kind of think about it in terms of timing as opposed to in terms of just overall one versus the other. Hopefully that helps.

It does. I'm going to introduce our next survey question, and I want to just drill into a little bit more about the wireless operations while we do this. So we've asked this question in some of our other sessions as well, and we're getting some interesting results. Do you believe 5G fixed wireless will be an effective competitor to fixed broadband services? And the choices are, yes, no maybe. And as we collect the results from that, and we'll get into that conversation with you, how important is it for U.S. Cellular to have meaningfully positive postpaid phone net ads? I recognize you talked about the B2B opportunity. You talked about prepaid and some of the opportunities to expand your addressable market. But for the core postpaid phone business, how important is that to have meaningfully positive volume and subscriber growth in the future?

Well, I think we have to -- I think what's important, and this is where we're pushing all of our energy towards, is certainly stabilizing our postpaid business. If you think about how we grow it, right, adding -- putting energy and effort behind the business side of the equation helps postpaid. The prepaid customer of today oftentimes is the postpaid customer of tomorrow. So putting energy behind prepaid helps the postpaid business in the long run. Even on the fixed wireless, I mean, I kind of talked about being a little bit skeptical about the bundling hypothesis. But I will say that if you have an inroad to a household, it does give you a good ability to market to that household, what you can do from a postpaid perspective. And so all of the growth areas that we're pushing on, these aren't being done in isolation. These are being done also to support the postpaid consumer side of our equation, which is a big part of our revenue stream. So it's -- I mean, it's obviously, it's a big piece of our business. I'm optimistic in what we can do there. I mean, relative importance, I mean, it's kind of hard to get into that. But obviously, I mean, the postpaid side of our business is very important. I'm comfortable with what we're doing to get that thing stable and to get it generating positive ARPU, which is a really substantive revenue driver for us. As we see plan mix expansion, as we see bigger opportunities to expand the pie with a household, that's what's really going to expand revenue on the consumer side as well.

We'll get to the results of our fixed wireless question. And it's kind of split. About half the audience that responded said yes, it will be effective. And then it was 1/4 no and roughly 1/4 said maybe, undecided. So it's interesting, right? There's a little bit of a split there. And I'll ask each of you from your own vantage point. So LT, in terms of an opportunity, why should investors take the fixed wireless opportunity more seriously as a competitive product? And Jim, for you, in your markets, are you concerned about fixed wireless competitors popping up, whether it's Verizon or T-Mobile or even in AT&T, and how you look at that on the other side?

So Mike, I think that the answer to the question shouldn't be maybe, right? It should be depends where. I think if you have fiber competitors and you have fiber existing in a marketplace, the opportunity for fixed wireless is minimal. Fiber, just the physics of fiber are such that the price point I could provide and the kind of service that I can provide over wireless, it's difficult to compete. And I mean, certainly, Jim can give his point of view on where he has fiber, but I'm not marketing our service where there's a fiber competitor. I don't think it's a good use of our effort and our energy. Where there's not a fiber competitor, absolutely. It's a compelling alternative, and I think there's 2 reasons why. The first is you have this intersection of -- on one hand, you have technology that now -- so for example, we've launched millimeter wave off of macro cellular. We have a world record in what we're doing from a network perspective. We have almost 1 gig of speed over 7 kilometers. Now -- and that's over millimeter wave. Now, that's over some really good conditions, right? So we're marketing, what we're in the market with is 300 megs. But the actual speeds that our customers can see, in many cases, is substantively above. That's a fantastic network experience. And where there isn't fiber that is a highly competitive product. It's a great technology. And it doesn't just have to be millimeter wave, right? As we start deploying CBRS, as C-band starts coming online, for our block of C-band, that's late 2023. And I know we can't get into DoD specifics, but for people that win spectrum in DoD, as that spectrum gets deployed, right, the mid-band experience is going to create a radius around that tower that's much wider. And so I think the market opportunity is substantive for what we can bring. We have a very competitive product. And I'm sorry to be droning on about this, but I'm excited about it. The other strategic lever that you have is you have a ton of government money that's going to be coming into play to fund builds and to put towers in places where it wasn't economically feasible to do it before. And we're really well positioned to do that. So just to put a little -- put a couple of numbers behind it, our pops covered -- we cover about 30 million pops with our mobile network. And so that's less than 10% of the total pops in the U.S.. However, $43 billion, give or take, is going to be distributed by the government for broadband infrastructure. When I -- we're doing some back-of-the-envelope math. It hasn't been figured out yet. But if you just use the existing maths, and it's not going to be that different, about $19 billion of that goes to the states in which we operate, and about $8 billion of that goes into our network footprint. And so I've got 20% of -- so -- for 43%, 8 as a percentage of 43 is about 20%. So you've got 20% of the government dollars coming into network that I operate and that I can benefit from to go put more towers in place, to go put more radios in place, and to bring wireless connectivity to homes that, in the past, like, maybe couldn't reach in an economically effective way. And every tower that I go build that is subsidized by those government dollars, I'm not just going to put millimeter wave on there, I'm going to go put 5G mobile broadband. And so it's also going to expand the mobile services that we can provide. So it's -- I view it as a big opportunity, but I view it as a big opportunity for rural or semi-rural or suburban. Where there's fiber, I don't see a ton of opportunity. I don't think it competes, and we're not trying to. And Jim, let me hand it to you. I would imagine you probably view it similarly in terms of where you see the competition.

Yes. I would adjust a few things, though. I think the cable network's going to be fixed wireless, right? I mean, like let me just say this to put an exclamation point on it. In our fiber market, so absolutely, it will be competitive with fiber. Our average monthly usage for a fiber customer in our fiber markets is 600 gig, okay? And we've -- in cable, it's similar, and there's 20% of the customers are now taking -- are using a [ terabit ] of data, okay? So I think wherever there's a cable competitor. Now in fairness, LT can still come in and be the second provider and offer that. So I just wanted to go -- just -- it's not like there's not competition there, right? Now, am I worried about fixed wireless, I would say we watch it carefully. We are different a bit. We have reinforced our rural copper markets with shorter loops due to government funding already that we got. We got significant [ ACAM ] and stimulus funding in the past, so we're on the fifth year of the 5-year plan, and that we're about 50% done. So we're -- and then we are aggressively going, we're 40% fiber in our most attractive markets. And then I think the other watch item for us is low orbit satellite. That -- Elon Musk is -- a lot of things I go -- is the guy a bit off his rocker? But it's unbelievable what vision and what he's done. So I think -- I do think the low orbit satellite will get to the very rural, so that's where we think that place -- it's very high priced. But there are watch items. Like LT, I take all things. I don't underestimate anything, right? So we're constantly trying to -- our goal is we're reinforcing our rural areas, our suburban areas and our urban areas.

Great. So I'll get to our third survey question, which will preview where some of the discussions are going to go. Which is what should U.S. Cellular do with its tower portfolio? And the choices are sell it, retain it and sign more MLA deals just like you did with DISH, or expand it by acquiring more towers. So we'll go to the polls, see what our audience thinks. In the meantime, we've gotten a bunch of questions from our audience, and so let me see if I can summarize a few of these. So first question on capital allocation. At TDS, can you maintain your dividend while investing heavily in fiber and 5G? Jim, I'm not sure if this is a topic that you'd like to hit or LT, but I realize that this is a question for the TDS corporate level.

We could bring Jane in. If Jane could come in, she can respond to that.

Sure, I'd be glad to. Mike.

Jane.

I would say that TDS, with our 47-year record increasing the dividend every year for 47 years, that we are committed to maintaining that record very much so.

And Jane, in at least the plans we have, we're funding the programs that we want with further growth. I mean, I don't know if you want to comment on that?

Absolutely. And that is within the growth plans that Jim and LT both articulated, yes.

Question for LT. What are you seeing in terms of the approach with the regional pricing? Are there certain things that you're actually seeing in the early implementation of this real progress, and is it working?

Yes. I mean, it's working in the sense that, first of all, operationally executing something like this is pretty challenging. And so just the fact that I was able, and the team was able to go and run 5, 6 different price structures. And you have to keep in mind, right, this is not just a marketing construct. Your care organization has to be aware, okay, where are you calling from? Now I need to pivot, make sure I know what the price plans are and what the structures are that you're calling about. So just operationally, the fact that we were able to go and do it, I was very pleased with. I'm sure that the question has more to do with the results that we're seeing. But operationally, the fact that we were able to do it, I think, is already tremendous. It is working in the sense that, right, we're able to see -- we're able to run a variety of different promotions. And sometimes, right, some of those promotions look very aggressive. And so you have some people they are quoting like, oh my gosh, U.S. Cellular is running $1,200 off phone. Well, we're running -- in many cases, right, we're running $1,200 off phone, but it's in a very, very limited geography. And it gives us the opportunity to say, okay, how much does that move the needle versus other offers? In this case, our offers in the second and the third quarter really highlighted the importance of choice. And so coming customers wanted choice. So one of the things that we went into the holidays with was we're providing customers the choice of a free device or a free year of service. It's a compelling alternative for customers. That helps us be successful going into the holidays. And so yes, we're both seeing it be successful in terms of the operational knowledge that it gives us. We can A-B test in a way that we were never able to do in the past. Like, frankly, our competitors can't match. It enables us to be much more flexible and nimble, and you're starting to see that in the results as well as we kind of get into the holiday season, our ability to take share, our ability to expand ARPU. A lot of it's driven by the knowledge that we receive from those regional trials.

So we get to the live survey results. 75% of respondents said sell it and 25% retain it. And so one of the things I was interested by is one of your earlier comments about the goal to double ROIC. So how do you think about the benefits of holding onto the tower portfolio versus the opportunities to sell it? And whether just that transaction alone could substantially improve the return on capital for U.S. Cellular?

Well, I mean, the thing we have to keep in mind is that if you sell those towers, you still have to use them, right? I'm not selling those towers. It's not some asset that I sell and then I say, "Oh, okay. Well, now I don't have to worry about that anymore, right? Now I sell them and now my network team is beholden to someone else in terms of making changes to our network. Changes to OpEx portfolio, to change the OpEx profile of the company. Because right now, I own 2/3 of my own towers. And so if I want to go make changes to those, if I want to deploy millimeter wave, I don't have to mother-may-I to some owner, I can just go do. And we're able to be much more nimble in those 2/3 of the towers that we own than in the 1/3 that we don't. And I can tell you, I mean I spent 12 years at AT&T, it is attractive to make that transaction from a financial perspective, but not from an operating perspective. And the reason it's attractive from a financial perspective is because it essentially just kind of gives you access to -- I mean, it's essentially a financing transaction, still using those assets. And if I look at the value or the rate, the implied rate that I have to pay with that as a financing transaction, I have better opportunities to finance our activities in the market. So it's not a high-yield opportunity to go create financial capacity. On the flip side, let's take a look at the operating and the rock opportunities that owning those towers gives me. I talked about for our network team, the benefits. We have a huge benefit in expanding the financial returns from those towers, right. Only a year ago, 1.5 years ago, we were primarily operating those towers for the benefit of our network team. So we own them so that our network team could get the flexibility. What we've done since then, though, is we've kind of said, hey, look, we're actively in the tower business. You referenced the DISH MLA, right? The reason that we were able to strike that MLA with DISH is because we said, "Okay, we're going to drive returns from these towers. We're going to treat co-location. We're going to treat generating revenue from those towers, having that beating revenue center for us as a key strategic priority. And we see a lot of benefits from that, right? Our colocation rates are substantively below the industry average. Now from -- as an operator, I look at that and I say, man, that's -- we got to get going. From a financial perspective, it's a huge opportunity, right? Because the towers are there, my network team is using them. Anybody that we get to co-locate, it's dollars straight to the bottom line. And the nice part is that because I am an operator of those towers, I now can offer a set of assets on that tower to a potential co-locator that a pure tower owner cannot. So for example, if someone says, "Hey, well, I'm interested in co-locating on your tower and I'm trying to decide between you and a tower nearby that's owned by American Tower. I can say, okay, well, you can put your assets on our tower, but we can also share generator space. We can share shelter space. We can potentially share backhaul. These are network sharing, asset sharing opportunities that will help us generate far greater returns on those towers. That's where the return on capital expansion opportunity really is.

Are you ready for our rapid fire, 3 minutes and 3 questions? Or 3 questions in 3 minutes? We'll do it that way. You ready?

Let's do it.

So the first question, why should investors buy your equity? You could speak about it as TDS or U.S. Cellular, I'll throw that over to each of you.

If we're going in a minute for each question, I got to cover it in 30 seconds, so I'll be super rapid fire. One, I believe we're undervalued from -- just from a P/E ratio perspective. Two, we have an excellent plan to grow. And the benefit of the plan to grow that we have is it uses existing assets. It doesn't require a whole ton of investment. Growth in business, growth in prepaid, it's done on the existing network, it's done on the existing distribution. So we have a growth plan that doesn't require a whole ton of investment to get the revenue generation that's being created. And the final piece is you've got a substantive amount of government dollars that are flowing into our key businesses, and I think we're probably better positioned than anyone in America to take advantage of it.

Well, I agree with LT, here. Our stock is undervalued. And from my perspective at TDS Telecom is if you do the math, I don't think we get recognized for what value we are creating and what we've created. We're much -- we're a smaller piece of it, and I get it, but the future is so bright for the telecom organization. The opportunity is so significant that I'm very confident we're very undervalued from the segment of TDS [ Top ].

Second question for each of you. For each of your businesses, is inflation a net opportunity, net neutral or a net risk for the business model and financial performance?

Should I go first, LT?

Shoot.

Real quickly. I kind of go to a net neutral. Not that there aren't risks there, and the biggest risk is labor because most of our supply chain has done a really good job of locking in pricing. Labor and building networks, there is where the risk is, so I would say there's a little bit of a negative risk there. But I'm going to go back to the industry and the value of our products. We've got pricing opportunity to offset some of the inflationary pressures.

Net neutral, pretty much dead out.

Okay. And finally, since this is the AppsEconomy conference, what application can fundamentally improve the demand for data, consumption, throughput over the next few years?

From a cellular perspective, if you're looking at a 1-, 2-, 3-year time frame, it's going to be fixed wireless. Getting wireless, particularly in rural America, is a game changer for broadband. In the longer run, Mike, I'm bullish on [ drones]. macro cellular is the way to connect drones. I think if I look at the opportunity in the industry, I think drones -- not 1, 2 years, but once we get past the beyond visual line sight issues, and I'm bullish that we will, I think that the cellular has a big role to play and I think we're positioning ourselves to do.

Yes. I would say that our forecast over the next 1 to 3 years is we're going to continue to see steady growth in data. The streaming video is on a pretty set curve. The fact that now people are working at home and so much more entertainment, that's on a pretty set curve we watch. I would say the wild cards out there are augmented reality and virtual reality in this whole new frontier called the metaverse. I mean, that could drive significant changes in broadbands in the future. But we're early, right? But I would say -- and then, of course, gaming chews up just a ton of bandwidth on our network, so the constant involvement of gaming.

It's great to see you both. Thank you for joining us today.

Thanks, Mike. Appreciate the time. It's good to see you as well.

Thank you.