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Telephone & Data Systems Inc. (TDS): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:

We maintain our Neutral recommendation on Telephone and Data Systems. The company's wireless business is expected to deliver on the back of increased handset offerings, shared data plans, equipment financing and expansion of LTE technology. Continued focus on broadband growth and related acquisitions are expected to increase its market share. Further, expansion into the rapidly developing managed hosting and cloud service offerings will likely aid profitability going forward. The carrier also reported better-than-expected third-quarter numbers. Within the wireless segment, constant churn in the post-paid segment, increased equipment cost and investments in network upgrade would continue to affect results. Increasing capital expenditure is also a major concern for the company. Further, access line losses and decline in wireline revenues remain detrimental to near-term growth.

Overview:

Based in Chicago, IL, Telephone and Data Systems Inc. (TDS) is a diversified telecom service provider offering wireless and wireline services in 36 states. The company owns 83% of U.S. Cellular, the seventh largest wireless operator in the U.S. subscriber-wise, serving 4.68 million customers.

U.S. Cellular provides wireless service coverage for Telephone and Data Systems in a number of markets (primarily in the Midwest), including Milwaukee, Madison, Des Moines, Cedar Rapids, Tulsa, Oklahoma City, Lincoln, Knoxville and Portland. U.S. Cellular caters to both retail consumers and business customers, offering a wide range of products and services, including local, regional and national calling plans, enhanced wireless services, mobile messaging, prepaid services, office products, data services and roadside assistance.

Telephone and Data Systems operates its fixed-line telecom businesses through its wholly-owned subsidiary, TDS Telecom, providing its services primarily to rural and suburban communities. TDS Telecom operates as an incumbent local exchange carrier (ILEC) as well as a competitive local exchange carrier (CLEC), serving approximately 7 million equivalent access lines. It offers ILEC services to both retail (residential, business and government) and wholesale (inter-exchange carriers) customers. ILEC retail operation provides local and long-distance telephone services, broadband Internet, video and directory advertising services. TDS Telecom's ILEC wholesale services include access services, billing and collection services to inter-exchange carriers such as AT&T and Sprint Corp. The entity offers CLEC services (voice, broadband and related services) to commercial and residential customers through its TDS Metrocom subsidiary.

U.S. Cellular and TDS Telecom (ILEC and CLEC) accounted for approximately 84% and 16% of total revenue, respectively, in 2011. Telephone and Data Systems derives modest revenues from the printing and distribution services, which are delivered through the company's 80% owned subsidiary Suttle-Straus Inc.

On Jul 1, 2011, Telephone and Data Systems had acquired OneNeck IT Services, a data hosting and information technology (IT) company.

On Jun 25, 2013, Telephone and Data Systems received a special cash dividend of $5.75 per common share and Series A common share, aggregating $407.1 million, from U.S. Cellular.

On Aug 1, 2013, Telephone and Data Systems agreed to acquire substantially all of the assets of New Mexico-based cable company, Baja Broadband LLC, for $267.5 million, subject to working capital and other adjustments.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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