Telephone and Data Systems On A Roll

Telephone and Data Systems, Inc. (TDS) is a diversified telecom service provider offering wireless and wireline services to over 5.8 million customers in 35 states. The principal subsidiaries, U.S. Cellular and TDS Telecom, accounted for approximately 77% and 23% of revenue, respectively, in 2005. The company owns 81.3% of U.S. Cellular (USM), the sixth largest wireless operator in the U.S., with 5.8 million subscribers as of December 31, 2006.

TDS operates its fixed-line telecom businesses through its wholly-owned subsidiary, providing local phone service, long-distance, and Internet access primarily to rural and suburban communities. It operates both as an incumbent local exchange carrier [ILEC], as well as a competitive local exchange carrier [CLEC].

TDS's fast growing, but capital intensive, wireless operations (US Cellular) fit well with its relatively stable, higher margin, fixed-line businesses. U.S. Cellular has earned a respectable reputation for offering high-quality service, which has helped to keep its churn (customer switching) rate low. It has completed a major upgrade of its network from the older time division multiple access [TDMA] equipment, to newer code division multiple access [CDMA] technology.

Although growth on the wireline side is expected to be modest, TDS Telecom's main focus is on the rural and suburban markets, where competition is less intense than in metropolitan and urban areas. Additionally, the broadband Internet [DSL] business is generating strong growth, partially offsetting recurring declines of local phone access lines and associated revenues.

The company just reported operating revenues of $1,112.1 million for the third quarter of 2006, up 8 percent from $1,027.9 million, as restated, for the comparable period one year ago. Operating income was $110.4 million compared to operating income of $104.5 million, as restated, for the third quarter of 2005. Net income available to common and diluted earnings per share were $75.2 million and $0.64, respectively. In the third quarter of 2005, net income available to common and diluted earnings per share were $38.6 million and $0.33, respectively, as restated.

TDS 1-yr chart: