Telephone & Data Systems' CEO Presents at 2013 Shareholder Meeting Conference (Transcript)

| About: Telephone and (TDS)

Telephone & Data Systems, Inc. (NYSE:TDS)

2013 Shareholder Meeting Conference Call

May 24, 2013 11:00 am ET


Walter C.D. Carlson – Chairman

LeRoy T. Carlson – President and Chief Executive Officer

Dennis P. Wolf – Chief Financial Officer, Executive Vice President and Principal Accounting Officer

William A. Marsh – Inspector of Election, IVS Associates. Inc,

George Maldonado – GAMCO Asset Management

Walter C.D. Carlson

Well, good morning ladies and gentlemen and welcome to this 2013 Annual Meeting Shareholders of Telephone & Data Systems Inc. I am Walter Carlson, Director and Chairman of the Board of TDS. I will be chairing this meeting. And at this time, I call to the meeting to order.

I would like to thank everyone who is here in the room for attending the meeting and I’d also like to welcome everyone who is participating by webcast. It is now 10 o’clock am May 24, 2013. As of this date and time the polls are open for voting on the matters before this annual meeting as set forth in the notice of the annual meeting and the proxy statement and on the agenda for this meeting.

The Rules of Conduct that we will follow for this meeting are set forth on the reverse side of the agenda. If you do not have a copy of the agenda and Rules of Conduct and would like a copy, please raise your hand and one will be brought to you if anybody needs an agenda. Okay.

I would like to take this opportunity to introduce the Directors, officers and special guest for TDS who are present. When I call your name will you please raise. First I would like to introduce the other directors of TDS who are present. LeRoy T. Carlson, Jr., Director, President and Chief Executive Officer of TDS and Chairman and Director of the United States Cellular Corporation and TDS Telecommunications Corporation; Kenneth R. Meyers, Director, Executive Vice President and Chief Financial Officer of TDS and Director and Vice President of the United States Cellular Corporation and Director of TDS Telecommunications Corporation; Dr. Letitia G. Carlson, Director of TDS and a physician and Associate Clinical Professor at George Washington University Medical Center; Clarence A. Davis, Director of TDS and Business Consultant; Donald C. Nebergall, Director of TDS and Consultant; Christopher D. O’Leary, Director of TDS and Executive Vice President, Chief Operating Officer of International of General Mills; George W. Off, Director of TDS and retired Chairman of Checkpoint Systems; Mitchell Saranow, Director of TDS and Chairman of The Saranow Group; Gary L. Sugarman, Director of TDS and Executive Chairman of FXecosystem and managing member of Richfield Capital Partners; Herbert S. Wander, Director of TDS and partner of Katten Muchin Rosenman LLP. I would also like to mention that Prudence E. Carlson, the Director of TDS is on phone, but was not able to join us due to a flight cancellation last night is regarded. Also not present today on the phone is LeRoy T. Carlson, the Chairman Emeritus of TDS and a Director of Emeritus of TDS and of the United States Cellular Corporation.

I’d like to now introduce the other officers of the company and subsidiaries who are present today. Dave A. Wittwer, President and Chief Executive Officer of TDS Telecommunication; Peter L. Sereda, Senior Vice President-Finance and Treasurer of TDS, Kurt B. Thaus, Senior Vice President and Chief Information Officer of TDS, Jane McCahon, Vice President – Corporate Relations and Corporate Secretary of TDS; William S. DeCarlo, General Counsel of TDS and partner of Sidley Austin LLC.

And thank you to all of our other attendees today for being here and begin supportive of the Telephone & Data Systems. I would like to take this opportunity now to introduce Dennis Wolf of PricewaterhouseCoopers LLP, the independent registered public accounting for TDS. Mr. Wolf, do you wish to make a statement at this time?

Dennis P. Wolf

Mr. Chairman, I have no comments to make, so we would rather answer questions now or at end of the meeting?

Walter C.D. Carlson

Are there any questions for Mr. Wolf, to the representative Pricewater now? If there are no questions, I would just – Dennis I would like to thank you personally for your years of services to TDS and this is the year that you roll off, new engagement I know you are being replaced by someone who is very talented. We expect great things from his team, but we want to thank you for you great services.

Dennis P. Wolf

Thank you.

Walter C.D. Carlson

Let me now proceed with the matters on the agenda. To act as Inspector of Election, I’ve appointed William A. Marsh of IVS Associates Inc, the firm that was engaged to provide independent inspector of election services at this meeting. Mr. Marsh is sitting there in the back. Welcome Mr. Marsh.

William A. Marsh

Thank you.

Walter C.D. Carlson

Will the holders of any undelivered practice please hold them up so that they maybe picked up by the inspector of elections at this time. Is anybody here on undelivered practice? Okay, yes, we have one here, good. Mr. Marsh has something to do.

William A. Marsh


Walter C.D. Carlson

And thank you. And anybody needs a ballot, all nominations and proposals by the TDS Board of Directors will be introduced in material. In addition a shareholder has notified TDS that he would intend to nominate a person for election as a director by the holding common shares.

As a result an opportunity will be provided at the appropriate time for the shareholder to make a statement regarding its nominee for the position of Director. Lastly a proposal by our shareholder will be considered later during this meeting as indicated on the agenda, if properly presented at that time. If any shareholder with a proper purpose would like to address the business at hand, I’d ask you to raise your hand and address the Chair, identifying yourself and disclosing the nature of your business. In addition, the shareholders will also have an opportunity following the formal part of the meeting and management presentation to ask any questions that they may have.

In the interest of time, we will disclose with the reading of the notice of the meeting and the affidavit of mailing of the notice. We will also dispense with the reading of the minutes of the annual meeting of shareholders held on May 17, 2012. Miss. McCahon, the Secretary is has copies of these documents, if any shareholder would likely to examine them after the meeting. The Board of Directors set March 28, 2013 as the record date for this shareholders meeting, the Secretary has a record of shareholders as of that date.

Subject to formal certification by an inspector of election, I have been informed that a majority of the voting power of each requisite voting group of TDS shares issued and outstanding on March 28, 2013, the record date for this annual meeting is represented at today’s meeting.

Accordingly, the formal business of the meeting will proceed on the basis that are equal and is present. The only matters which may properly come before the meeting involving the vote of shareholders are those that were set forth in the notice of Annual Meeting and proxy statement. The prior proposal and the notice of Annual Meeting and proxy statement were number one the election of directors, number two the ratification of auditors, number three the approval were restated non-employee director compensation plan, number four an advisory vote on executive compensation and number five the shareholder proposal.

Turning first to proposal number one the election of directors. The first thing on business is the election of directors, as indicated in the notice of annual meeting and proxy statement eight directors will be elected by the holders of Series A Common shares and preferred shares and four directors will be elected by the holders of the common shares. The Board of Directors has nominated the following incumbent directors for elections of directors by the holders of Series A Common shares and preferred shares. LeRoy T. Carlson, Jr. Letitia G. Carlson, Prudence E. Carlson, Walter Carlson, Kenneth R. Meyers, Donald C. Nebergall, Christopher D. O’Leary, and Herbert S. Wander.

The Board of Directors has nominated the following encumbered directors for elections directors by the holders of common shares Clarence A. Davis, George W. Off, Mitchell H. Saranow and Gary L. Sugarman. The Board of Directors unanimously recommended the Board for each of these nominees for election of directors. In addition, GAMCO Asset Management Inc. has nominated Mr. Ryan J. Morris for election as a director by the holders of common shares. At this time, a representative of GAMCO Asset Management, who is George Maldonado, will make a statement regarding the nomination of Mr. Morris. Mr. Maldonado, would you like to stand indentify yourself and make your statement at this time.

George Maldonado – GAMCO Asset Management

Thank you, Mr. Chairman. Our clients are long-term shareholders of TDS in its 84.6% owned subsidiary of U.S. Cellular. We’re delighted that U.S. Cellular has recently been making shareholder friendly steps. We would urge the board of TDS to follow suite and take decisive actions to enhance intellectually our holder value. For this reason, we urge all common shareholders to vote for the election of Mr. Ryan J. Morris. Thank you.

Walter C.D. Carlson

Thank you, Mr. Maldonado. At this time, Ted Carlson would like to make a statement in support of the election of the nominees of the TDS Board of Directors and as I said before, those nominees were unanimously recommended by the board to the common holders.

LeRoy T. Carlson

Okay, thank you. Your Board of Directors has nominated the following incumbent Directors of TDS for election as Directors by the holders of common shares, Clarence A. Davis, George W. Off, Mitchell Saranow and Gary L. Sugarman. Your Board of Directors believes that the background and experience of its nominees make them truly qualified to serve as Directors of TDS and unanimously recommends that you vote for its nominees. Each of these nominees has been very active in urging meaningful action and helping TDS at a course for sustainable profitable growth.

A change in the composition of the Board of Directors risks disruption in TDS’s ability to affect needed change and a loss of valuable expertise. The four nominees of the TDS Board of Directors has significant business, finance and managerial experience in telecommunications, retail and consumer marketing and other business matters that provider significant value to TDS.

Clarence Davis has significant business and accounting experience, he was a Director and former Chief Executive Officer of Nester, a public technology company. He was formally Chief Financial Officer and Chief Operating Officer of the American Institute of Certified Public Accountants. He is currently a Director or Trustee of two investment firms. He also has substantial audit committee experience including the TDS Audit Committee and has served as a financial expert on the TDS Audit Committee and the audit committee of other companies. Clarence has been a Director of TDS, since 2009.

George Off has significant business and executive management experience as the former Chief Executive Officer of retail marketing and technology companies at Catalina Marketing Corporation and Checkpoint Systems, Inc. He also has substantial board experience. George is the Chairman of the TDS Audit Committee and is a member of the TDS Compensation Committee. He has been a TDS Director since 1997.

Mitch Saranow has been a TDS Director since 2004, he has significant management, finance, accounting and legal experience in multiple industries including cable television. He was formally a senior lecturer in financial reporting and controls at the Harvard Business School. Mitch has extensive public company board and audit committee experience. He has been a member of the TDS Audit Committee since 2004 and he is a designated financial expert on the TDS Audit Committee.

Gary Sugarman has significant management experience in multiple telecommunications companies. He has experience in Telecom mergers and acquisitions. Gary has financial expertise as a founder and managing member of Richfield Capital Partners. He is a current or former member of multiple telecommunications boards; he has been a TDS Director since 2009. Gary is a member of TDS Compensation Committee. Your Board of Directors unanimously recommends that you vote its four highly qualified and experienced nominees. Thank you for your support.

Walter C.D. Carlson

Thank you, Ted. We will now proceed with the other matters on the agenda. Item number two, ratification if auditors. The second items of business is the proposal to ratify the selection of PricewaterhouseCoopers LLP as the company’s independent registered public accountants for 2013. This item of business was proposed by the Board of Directors. This proposal requires the abundant vote of a majority of the vote that could be passed by the holders of Series A Common shares, common shares and preferred shares of TDS voting as one group present in person or represented by proxy at this meeting. The Board of Directors unanimously recommends a vote for this proposal.

Item number three, restatements of non-employee director compensation plan. The third item of business is the proposal to approve the restated compensation plan for non-employee directors. This item of business was proposed by the Board of Directors, this proposal requires the affirmative vote of a majority of the votes that could be passed by the holders of Series A Common shares, common shares and preferred shares of TDS voting as one group present in person or represented by proxy at this meeting. The Board of Directors unanimously recommends a vote for this proposal.

Item number four, the advisory vote on executive compensation. The fourth item of business is the proposal to approve on an advisory basis for compensation of our named executive officers as set forth in TDS’s proxy statements dated April 19, 2013. This item of business was proposed by the Board of Directors pursuant to requirements Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. This proposal requires the affirmative vote of a majority of the vote that could be passed by the holders of Serious A Common shares, common shares and preferred shares of TDS voting as one group present in person or presented by the proxy at this meeting. The Board of Directors unanimously recommends a vote for this proposal.

Item number five, the shareholders proposal. This fifth item on the agenda is a proposal submitted by its shareholder and I would ask whether any representatives of the shareholder is present for the purposes of bringing that forward. You had been advised that there was a designee but does not appear that anyone is present to bring that for. So since neither the proponents nor a representatives of the proponents registered in advance of commencing this meeting is present to present this proposal to the shareholders, unless someone else steps forward the shareholders proposal will not voted on at this meeting and we will proceed with the next item on the agenda.

Unidentified Company Representative

Can I bring it to Board?

Walter C.D. Carlson

You would have to – are you a designee?

Unidentified Company Representative

I am a nearby – yes, I’m proxy.

Walter C.D. Carlson

Are you a proxy for Mr. Sheldon?

Unidentified Company Representative


Walter C.D. Carlson

So --.

Unidentified Company Representative

He is not designee.

Walter C.D. Carlson

Mr. [Norman] I do respect Mr. (inaudible) but I think under the rules here, it’s required that the proposal be brought forward by someone who has been designated by Mr. Sheldon or his designee to bring that forward. So I don’t think that your request has been ordered. So I respectfully have to decline.

Unidentified Company Representative

Right, yes but you then if anybody else.

Walter C.D. Carlson

Yeah, if anyone – excuse me, then I will decide, if anyone else here as a designee of Mr. Sheldon is able to step forward.

Unidentified Company Representative


Walter C.D. Carlson

Okay, thank you. So let me continue now with the business of the meeting. The holders of series A common shares are entitled to 10 vote for each series A common share registered in their names, the holders of preferred shares are entitled to one vote for each preferred share registered in their names. The series A common shares and preferred shares vote with respect to all matters except the election of four directors. The common shares vote with respect to all matters except the election of eight directors and the election of four directors, the holders of common shares are entitled to one vote for each common share registered in their names and matters other than the election of directors, the holders of common shares are entitled to 0.541474 votes for each common share registered in their names for this meeting.

If you have not check completed delivery of your proxies or ballots, please do so now, since we will be closing the polls for voting at this time. My watch is now 10:20 am on May 24, 2013 as of this date and time the polls are closed for voting. The inspector of election will tally the votes passed prior to the closing of the polls and we will furnish a written report of the vote count. In order to permit the inspector of election adequate time’s count and certify the votes, this meeting will be adjourned without announcing the voting results. The voting results will be announced promptly after they are finalized and available.

Since there is no further business to come before this meeting, the annual meeting is adjourned and we thank you for attending. But at this point we would like our President and CEO, Ted Carlson to make a brief presentation to you. After that, we will open the floor for any questions that you may have and in addition after we have concluded this part of the presentation, Jane McCahon, TDS’s Vice President and Corporate Relations and Corporate Secretary will be available if you would like to discuss other matters of interest or if you have further questions. Ted.

LeRoy T. Carlson

Thank you, Walter. And thank you in particular ladies and gentlemen for joining us for this Annual Meeting of the TDS shareholders. I am Ted Carlson, President and CEO of TDS and this morning I will touch on our accomplishments in 2012 and our strategies to compete in 2013. First of all I want to thank our shareholders for your support of our highly qualified director nominees.

My comments today include Forward-Looking information. Therefore, I ask that you review the Safe Harbor statement. You can find this presentation on our Investor Relations website along with our 2012 Annual Report to shareholders, which include a description of important factors that may cause our actual results to differ from forward-looking statements. I ask that you also view this language relating to the solicitation of proxies which is also available on our Investor Relations website.

And now, I will outline our strategies to improve performance in 2013 and to fulfill our mission which is to provide outstanding communication services to our customers and meet the needs of our shareholders, our people and our communities. TDS is a diversified Fortune 500 Telecommunications company with two principle business units: U.S. Cellular, our majority owned full service wireless carrier that is publicly traded under the symbol USM, and TDS Telecom a wholly owned provider of broadband, video and voice services and as well as hosted and managed services.

TDS has increased its dividend for 39 consecutive years. Together TDS and U.S. Cellular have repurchased nearly $900 million of their shares since 2007, described to deliver value to our shareholders. And just last Friday, U.S. Cellular have declared a special cash dividend of $5.75 per share after closing the sale of certain underperforming markets is Sprint Nextel Corporation for $480 million.

TDS has a strong financial foundation with relatively low levels of debt and long debt maturities. This has given us the flexibility over the years to invest in our businesses and return value to shareholders. We have ample liquidity and a strong cash position. As I just mentioned, U.S. Cellular recently received $480 million and declare a special cash dividend for approximately that same amount. U.S. Cellular also plans to monetize certain towers and additional spectrum in a divested market.

And now, I’ll turn to U.S. Cellular and discuss some of our key accomplishments in 2012 and our strategy to complete in 2013 and beyond. U.S. Cellular is more committed than ever to differentiating its brand in the marketplace through delivering outstanding customer experiences in order to drive subscriber growth. We continue to receive important recognition for our customer experiences including network quality in 2012. We were able to improve gross customer additions in our non-divested markets through more effective marketing, advertising and in-store execution. We also expanded distribution in order to offer prepaid and postpaid service in Walmart stores nationwide in our footprint. And we increased smartphone penetration data use and average revenue per postpaid customer with a strong smartphone device portfolio and our expanding 4G LTE network.

One of U.S. Cellular’s primary goals this year is to stabilize and grow the postpaid subscriber base by encouraging more consumers to switch to a better experience with U.S. Cellular and by reducing postpaid churn. We are offering more competitive services, plans and devices including the Samsung Galaxy S4 and then Apple products later this year. We were enhancing each of our channels to increase sales and improve service and we are continuing to expand distributions through national retailers like Sam's Club. U.S Cellular is also bringing 4G LTE to more customers through encouraged continued migration to the smartphones and to reduce investments in and expenses of legacy networks. At the same time we are working to increase operational efficiencies and reduce costs through strategic and operational initiatives.

Looking at the first quarter of this year, in the core markets not included in the market divestiture, U.S. Cellular continues to increase smartphone penetration and average revenue per postpaid customers. Smartphones was 62% of devices sold and smartphone customers were 43% of the postpaid customer base. This indicates both strong demand and significant rooms for growth in the smartphone penetration. U.S. Cellular’s plans to bring 4G LTEs network availability to 87% of its customers. This year and to increase capacity and to reduce network cost, we will also introduce at least a 11 new 4G LTE Android, Apple and Windows devices. U.S. Cellular has sufficient spectrum to support our current 4G LTE rollout plans. And we’re working to make additional spectrum available and obtainable for our future needs.

U.S. Cellular plans to improve its performance in 2013 and those plans support our long-term growth strategies to drive subscriber and revenue growth and to improve margins. We’re creating compelling and differentiated experiences, maximizing our distribution potential and targeting key customer segments by small and medium businesses. We’re also improving our cost controls and identifying new sources of revenue growth.

And now I’ll turn to TDS Telecom and TDS Telecom’s hosted and managed services business. And I also discuss of the Baja Broadband acquisition that we announced at Telecom earlier this year will support our growth strategies. TDS Telecom is focused on attracting broadband and video customers with competitive data speeds and video services. By the end of 2012 95% of our ILEC access lines have data network availability and ISPs were available in markets. We expanded our proprietary video service TDS TV to a total of 10 markets, enabling us to attract more customers with double and triple play service bundles, which help to increase retention. TDS Telecom achieved strong growth in sales of our managedIP voice and data communications product and expanded the product line to attract new customer segments.

The Hosted and Managed Services business, HMS, was the primary commercial revenue driver in 2012 and we continue to integrate our HMS acquisitions to support operational efficiency and future growth. TDS Telecom’s overall revenues and profitability were impacted by reduced regulatory revenues. We are continuing to attract and retain residential customers at Telecom with bundles that include competitive broadband speeds, high-quality video options and voice services. We plan to increase TDS TV penetration by targeting new customer segments and enabling higher margin video services and we’re enhancing our network cost effectively to support the expansion of TDS TV to more markets and offer higher broadband speeds.

Moving to our TDS Telecom commercial strategy, we’re continuing to expand the managedIP product portfolio to meet customer demand and diversify our customer base and we’re driving Hosted and Managed services growth with a comprehensive service portfolio and a strong and integrated operational infrastructure. As I mentioned previously, the acquisition of Baja Broadband will support TDS Telecom’s residential and commercial strategy by providing significant opportunities for growth.

As you can see on this slide, churn for customers with double and triple play bundles is significantly lower than for customers with a single service. At the end of the first quarter, 71% of TDS Telecom’s ILEC residential customers add service bundles and 32% of those customers had triple play bundles. In the first quarter of this year, TDS Telecom achieved 60% growth in combined ILEC and CLEC sales of our managedIP product. As part of our strategy to be a trusted partner is small and mid sized businesses. We are offering both standalone and bundled broadband and voice services. In complementary services, we drive managed security, transport and last-mile access. These strategies support TDS Telecom’s long-term goals to drive customer growth and increase revenues.

We’re supporting our residential and commercial strategies and leveraging our foreign capabilities through acquisitions in closely adjacent industries like Cable. We’re developing cost effective network strategies to our markets to enable profitable growth and we’re maximizing opportunities to sustain and gain regulatory support that will help us to continue to provide high quality services to our world customers.

The acquisition of Baja Broadband supports the strategies that I just outlined. The combination of Broadband and Cable in Baja is a natural extension of our TDS Telecom businesses, enabling us to leverage our expertise, our platform and our technologies to increase residential and commercial data and video penetration in these Baja markets and achieving higher returns for TDS Telecom were long-term. We believe we can increase Baja’s residential customer retention and lifetime value and build a strong commercial customer base in Baja’s markets that are currently underserved. We expect to close the Baja transaction later in 2013.

We’re continuing to build our Hosted and Managed services business to grow the commercial customer base and increase revenues. TDS Hosted and Managed services is responding to businesses seeking to outsource their IP needs by leveraging the strengths and capabilities of each of our Hosted and Managed services companies to develop a comprehensive diversified service portfolio that includes collocation, Hosted and Managed services, Cloud services and IG products and services. And we’re integrating and strengthening these HMS operational infrastructures to support growth more efficiently.

In closing, I’d like to thank all of you, our shareholders, and of course all of our bondholders as well for your continued support of TDS and our businesses. And now, we’re pleased to take your questions. Are there any questions? If not, I want to thank you all for attending this Annual Meeting. Walter, do you have any closing remarks?

Walter C.D. Carlson

I have two closing sentences. Let me thank those in attendance here again who are attending, for those who are listening in on a webcast for listening in. We look forward to speaking with you again next year and thank you. Thanks, everybody thanks.

Question-and-Answer Session

[No Q&A session for this event]

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