Business Context and Reporting Period
Telephone and Data Systems, Inc. (TDS) filed its Form 10-K for the fiscal year ended December 31, 2020. TDS operates entirely in the United States through three principal reportable segments: UScellular wireless, TDS Telecom Wireline, and TDS Telecom Cable. It also operates smaller hosted and managed services and printing businesses.
- UScellular had approximately 5.0 million wireless connections and operated in portions of 21 states.
- TDS Telecom had approximately 1.2 million wireline and cable connections in 32 states.
- TDS owned 82% of UScellular's combined outstanding shares and controlled 96% of its combined voting power.
- TDS had approximately 9,200 full-time and part-time employees at year-end.
Financial Metrics, Liquidity and Capital Structure
The supplied filing text incorporates the financial statements and management discussion by reference to Exhibit 13 but does not include clear consolidated revenue, operating income, net income, cash flow, margin, cash balance, total debt, or liquidity-balance values.
- Gross property, plant and equipment at December 31, 2020 totaled $13.659 billion, comprising $8.785 billion at UScellular, $3.947 billion in Wireline, $568 million in Cable, and $359 million at Parent and Other.
- UScellular received $92 million of high-cost regulatory support in 2020.
- TDS Telecom received $114 million under federal regulatory support programs in 2020.
- TDS states that its credit rating was sub-investment grade and warns that it has incurred negative free cash flow at times in the past.
- TDS paid quarterly dividends of $0.170 per share in 2020, compared with $0.165 in 2019 and $0.160 in 2018. The dividend increased to $0.175 per share in the first quarter of 2021.
- TDS had $185 million remaining under its authorized $250 million common-share repurchase program at December 31, 2020. No TDS shares were repurchased during the fourth quarter of 2020.
- UScellular issued $500 million of 6.25% senior notes due 2069 and $500 million of 5.5% senior notes due 2070 during 2020.
Material Changes Versus Prior Comparable Period
- The quarterly dividend increased from $0.165 per share in 2019 to $0.170 in 2020, with a further increase to $0.175 in the first quarter of 2021.
- TDS Telecom's Cable operations expanded into North Carolina through the December 31, 2019 acquisition of substantially all assets of MI Connection Communications System, doing business as Continuum.
- UScellular continued commercial deployment of 5G in selected markets and expected to introduce 5G roaming in 2021.
- TDS Telecom continued expanding fiber-to-the-home deployments in existing and out-of-territory markets and Cable continued DOCSIS 3.1 upgrades.
- UScellular completed its VoLTE deployment and continued modernization of its 4G LTE network.
- The filing identifies new 2020 UScellular long-term debt issuances, but the supplied text does not provide a complete year-over-year debt reconciliation.
Outlook, Commentary, Risks and Unusual Items
Management's strategy emphasizes network investment, 5G deployment, fiber expansion, broadband-led growth, service bundling, customer retention, and selective acquisitions or spectrum transactions. The filing does not provide a clear quantitative revenue, earnings, capital-expenditure, or free-cash-flow outlook.
- Competition from national wireless carriers, cable companies, fiber overbuilders, streaming providers, satellite providers, wireless broadband providers, and VoIP companies may pressure pricing, churn, revenues, and margins.
- Approximately 80% of Wireline ILEC service addresses faced active cable competition at December 31, 2020.
- Regulatory support is material and may decline. The A-CAM program also carries build-out requirements, with potential penalties or loss of support for noncompliance.
- UScellular faces spectrum availability, 5G deployment, roaming, network-construction, and technology-obsolescence risks.
- TDS faces substantial capital requirements, sub-investment-grade credit, debt covenant and refinancing risks, and potential restrictions on investment, dividends, or share repurchases.
- COVID-19 could adversely affect customer demand, supply chains, staffing, operations, and the broader economy; the ultimate impact remained uncertain.
- Cyberattacks, including recurring denial-of-service attacks, vendor disruptions, data-security incidents, litigation, regulatory changes, and adverse legal outcomes could materially affect results.
- TDS reported that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, and that no material fourth-quarter changes affected those controls.
Important Facts for Investors to Verify
- Verify consolidated and segment revenue, operating income, net income, cash flow, capital expenditures, margins, cash, debt, and liquidity from Exhibit 13 and the incorporated financial statements.
- Review debt maturities, interest expense, revolver availability, receivables securitization capacity, and compliance with TDS and UScellular financial covenants.
- Assess the sustainability of federal and state regulatory support, including the $92 million received by UScellular and $114 million received by TDS Telecom in 2020.
- Evaluate UScellular's 5G coverage, spectrum holdings, roaming economics, customer trends, churn, and network investment requirements.
- Evaluate Wireline and Cable broadband penetration, fiber construction returns, competitive overlap, video-service trends, and customer losses to wireless or streaming alternatives.
- Review legal proceedings, commitments, contingencies, cybersecurity disclosures, and the potential effects of COVID-19.
- Consider the TDS Voting Trust and dual-class share structure, which concentrate voting control and may limit change-of-control opportunities for Common Share holders.