10-K 1 tds-20231231.htm 10-K tds-20231231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                    to                                   
Commission file number 001-14157
image1a29.jpg
TELEPHONE AND DATA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
36-2669023
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (312) 630-1900
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Shares, $.01 par value
TDS
New York Stock Exchange
Depository Shares each representing a 1/1000th interest in a share of 6.625% Series UU Cumulative Redeemable Perpetual Preferred Stock $.01 par valueTDSPrU
New York Stock Exchange
Depository Shares each representing a 1/1000th interest in a share of 6.000% Series VV Cumulative Redeemable Perpetual Preferred Stock $.01 par valueTDSPrV
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
   
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes
No
   
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 Accelerated filer
Non-accelerated filerSmaller reporting company
   Emerging growth company
      
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes
No
As of June 30, 2023, the aggregate market values of the registrant’s Common Shares and Series A Common Shares held by non-affiliates were approximately $1 billion and less than $1 million, respectively. For purposes hereof, Telephone and Data Systems, Inc. (TDS) has assumed that each director and executive officer is an affiliate, and no party who has filed a Schedule 13G is an affiliate. The June 30, 2023 closing price of the Common Shares was $8.23 as reported by the New York Stock Exchange. Because trading in the Series A Common Shares is infrequent, the registrant has assumed for purposes hereof that each Series A Common Share has a market value equal to one Common Share because the Series A Common Shares are convertible on a share-for-share basis into Common Shares.
The number of shares outstanding of each of the registrant’s classes of common stock, as of January 31, 2024, is 106 million Common Shares, $.01 par value, and 7 million Series A Common Shares, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant’s Notice of Annual Meeting of Shareholders and Proxy Statement (Proxy Statement) to be filed prior to April 29, 2024, for the 2024 Annual Meeting of Shareholders scheduled to be held May 23, 2024, are herein incorporated by reference into Parts II and III of this report.
 



TABLE OF CONTENTS
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PART I
Item 1. Business
Telephone and Data Systems, Inc. (TDS) provides high-quality communications services to customers with 4.6 million retail wireless connections and 1.2 million broadband, video and voice connections at December 31, 2023. TDS conducts all of its wireless operations through its majority-owned subsidiary, United States Cellular Corporation (UScellular). As of December 31, 2023, TDS owned 83% of the combined total of the outstanding Common Shares and Series A Common Shares of UScellular and controlled 96% of the combined voting power of both classes of UScellular common stock. TDS provides broadband, video and voice services through its wholly-owned subsidiary TDS Telecommunications LLC (TDS Telecom). TDS Common Shares trade under the ticker symbol “TDS” on the New York Stock Exchange (NYSE). UScellular Common Shares trade on the NYSE under the ticker symbol “USM.”
Under listing standards of the NYSE, TDS is a “controlled company” as such term is defined by the NYSE. TDS is a controlled company because over 50% of the voting power for the election of a majority of the directors of TDS is held by the trustees of the TDS Voting Trust.
TDS has two reportable segments: UScellular and TDS Telecom. TDS operations also include the operations of its wholly-owned hosted and managed services (HMS) subsidiary, which operates under the OneNeck IT Solutions brand, and its wholly-owned subsidiary Suttle-Straus, Inc. (Suttle-Straus). HMS' and Suttle-Straus’ financial results were not significant to TDS’ operations. TDS operates entirely in the United States. See Note 19 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information about TDS' segments.
The map below highlights TDS’ consolidated areas of operations:
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UScellular OPERATIONS
General
UScellular provides wireless telecommunications services to customers with 4.6 million retail connections in portions of 21 states collectively representing a total population of 32 million. UScellular operates in one reportable segment, and all of its wireless operating markets are in the United States.
Operating Strategy and Community Focus
UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service and competitive devices, plans and pricing - all provided with a community focus.
UScellular operates a regional wireless network. UScellular’s interests in wireless spectrum licenses include both direct interests whereby UScellular is the licensee and investment interests in entities which are licensees; together, these direct and investment interests involve operating and non-operating wireless spectrum licenses covering portions of 30 states and a total population of approximately 51 million as of December 31, 2023.
On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies decided to initiate a process to explore a range of strategic alternatives for UScellular. At this time, UScellular cannot predict the ultimate outcome of such process or estimate the potential impact of such process on the financial statements.
As part of its business development strategy, UScellular may periodically be engaged in negotiations relating to strategic partnerships and/or the acquisition, exchange or disposition of companies, strategic properties, and investment interests. Additionally, UScellular may be engaged in negotiations related to wireless spectrum, including participation in Federal Communications Commission (FCC) auctions. The FCC has historically conducted auctions through which additional spectrum is made available for the provision of wireless services. Historically, UScellular has participated in certain FCC auctions both directly and indirectly through its limited partnership interests.
UScellular has a longstanding commitment to supporting its local communities through donations and volunteerism. UScellular focuses its Corporate Social Responsibility program on addressing gaps in STEM (Science, Technology, Engineering and Math) education and connecting tomorrow’s innovators with the resources they need today to help shape their future opportunities. UScellular serves its local communities through exclusive partnerships with acclaimed national nonprofit partners. In 2023, UScellular continued exploring ways to leverage its assets, brand, partnerships, and resources to close the digital divide with a focus on helping to ensure youth in its markets have reliable and fast internet access in school and at home through the After School Access Project. In addition, UScellular continues to participate in the TDS Environmental, Social and Governance (ESG) program. UScellular believes in serving as a good steward of the environment and enacting governance practices that align with its corporate values and commitment to its customers, associates, communities and shareholders.
Customers, Services, Products and Seasonality
Customers. UScellular focuses on consumer, business and government customers located in its operating markets. These customers are served primarily through UScellular’s retail stores and digital platform, as well as its direct and indirect sales channels.
Services. UScellular provides a wide variety of wireless services accessible on a broad range of devices. Customers can obtain wireless services on a postpaid or prepaid basis. A single account may include monthly wireless services for a variety of handsets, connected devices and IoT Solutions. A postpaid connection represents an individual line of service for a device for which a customer is generally billed one month in advance for a monthly access charge in return for access to and usage of network services. UScellular’s prepaid service enables individuals to obtain services without credit verification by paying for all services in advance. Approximately 90% of retail connections were postpaid connections as of December 31, 2023.
UScellular offers various service plans with nationwide coverage tailored to the needs of customers. Depending on those needs, service plans may include features related to, among other items: unlimited or metered voice and data; high-definition video features; the ability to use a device as a Wi-Fi hotspot; international voice, text, and data; and varying data rates depending on the plan and usage on that plan. Service offerings vary from time to time based on customer needs, technology changes and market conditions - and may be provided as standard plans or as part of limited time promotional offers.
UScellular offers home and business internet throughout the footprint via fixed wireless access. Options include an in-home self-installed device, a self-installation device mounted on the external side of a window, and externally-mounted professionally-installed equipment with an internal router. In addition to selling direct to businesses and residential homes, UScellular works with several municipalities to bring broadband internet to underserved communities.
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UScellular offers advanced wireless solutions to consumers and business and government customers including an expansive suite of connected Internet of things (IoT) solutions and software applications across the categories of monitor and control (e.g., sensors and cameras), business automation/operations (e.g., e-forms, office solutions), communication (e.g., enterprise messaging, primary and back-up internet connectivity for business continuity), fleet and asset management, smart water solutions, private cellular networks (PCN) and custom, bespoke end-to-end IoT solutions et al. The business organization also offers a suite of professional and managed services. Lastly, for first responders, UScellular offers a suite of critical connectivity solutions that includes Wireless Priority Services (WPS) and Quality Priority and Preemption (QPP) options. UScellular intends to continue to further enhance these offerings in 2024 and beyond.
Products. UScellular offers a comprehensive range of devices such as smartphones and other handsets, tablets, wearables, mobile hotspots, fixed wireless home internet, and IoT devices. In addition, UScellular also offers a wide range of accessories, including wireless essentials such as cases, screen protectors, chargers, memory cards and consumer electronics such as audio, home automation and networking products. UScellular allows customers to purchase certain devices and accessories on installment plans, allowing for customers to pay over a specified period of time.
UScellular also offers services that enable customers to replace or repair their devices, including the Device Protection+ program, which provides as soon as next-day delivery of a replacement device for damaged, lost and stolen devices, and AppleCare services for Apple iOS customers. UScellular's Device Protection+ Advanced program also includes local or on-demand repair for eligible devices. In addition, UScellular offers a Trade-In program through which UScellular buys customers' used equipment.
UScellular purchases devices and accessory products from a number of original equipment manufacturers and distributors. UScellular manages relationships with its suppliers to ensure its customers have access to the industry's latest devices, to obtain best possible pricing, and to identify opportunities for promotional support from its suppliers. UScellular contracts with third-party providers for the majority of its product warehousing, distribution and direct customer fulfillment activities. UScellular also contracts with third-party providers for its device service programs.
Seasonality. Seasonality in operating expenses may cause operating income to vary from quarter to quarter. UScellular’s operating expenses tend to be higher in the fourth quarter due to increased marketing and promotional activities during the holiday season.
Sales and Distribution Channels
UScellular supports a multi-faceted distribution program, including retail sales, direct sales, telesales, ecommerce, indirect sales including resellers, independent agents and third-party national retailers.
Company retail store locations are designed to market wireless services and products to the consumer and small business segments in a setting familiar to these types of customers. Direct sales representatives and the indirect channel sell traditional wireless services as well as IoT and other specialized products and solutions to medium and large-sized businesses and governmental entities. Additionally, the telesales and ecommerce channels enable customers to purchase services and devices via phone and online, respectively.
UScellular has relationships with exclusive and non-exclusive agents (collectively “agents”), which are independent businesses that obtain customers for UScellular on a commission basis. UScellular’s agents are generally in the business of selling wireless devices, wireless service plans and other related products to consumer and business and government customers. UScellular provides support and training to its agents to increase customer satisfaction and to ensure a consistent customer experience.
To expand its retail presence, UScellular also maintains a relationship with a large national retailer, selling postpaid and prepaid devices.
Competition
The wireless telecommunication industry is highly competitive. UScellular competes directly with several wireless service providers in each of its markets. In general, there are at least four competitors across UScellular's service area, including to a varying degree: the national wireless companies - Verizon Communications Inc., AT&T Inc., T-Mobile US, Inc., and Dish Network Corporation, cable wireless, including Comcast Corporation and Charter Communications, Inc., and mobile virtual network operators (MVNOs). In addition, UScellular competes with other companies that use alternative communication technology and services to provide similar services and products.
Since each of these competitors has access to comparable technology and facilities, competition among wireless service providers for customers is principally on the basis of types of services and products, price, brand, size of area covered, network quality, network speed and responsiveness of customer service. Types of services and products include non–wireless related services such as content offerings that are bundled with wireless services.
Network
Network Technology. Wireless telecommunication systems transmit voice and data signals over networks of radio towers using radio spectrum licensed by the FCC. Access to local, regional, national and worldwide telecommunications networks is provided through system interconnections. A high-quality network, supported by continued investments in that network, is an important factor for UScellular to remain competitive.
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5G technology helps address customers’ growing demand for data services and enhances services, including high-speed fixed wireless home internet services, requiring high speed and reliability as well as low latency. UScellular supports mobility and fixed wireless services through a combination of low-band, mid-band and high-band spectrum. UScellular's initial 5G deployment has predominantly used low-band spectrum to launch 5G services in portions of substantially all its markets. During 2023, UScellular continued to invest in 5G with a focus on deployment of mid-band spectrum, which will largely overlap portions of areas already covered with low-band 5G service. 5G service deployed over mid-band spectrum will further enhance speed and capacity for UScellular's mobility and fixed wireless services.
UScellular also operates a VoLTE network, which allows customers to utilize a 4G LTE enabled mobile device for voice and data services, including high-definition voice and simultaneous voice and data sessions.
As a result of its continued investment and modernization of its network, UScellular decommissioned its third-generation (3G) CDMA network in the first quarter of 2024.
Roaming. Inter-carrier roaming agreements are negotiated between wireless operators to enable customers to use wireless services outside of their home service area. UScellular has entered into roaming agreements with a number of wireless companies so that it can offer its customers nationwide services, including 4G LTE, VoLTE and 5G, as well as a variety of international roaming options.
Towers. UScellular owns and leases cell towers to provide service to its customers throughout its footprint. UScellular receives tower rental revenues when another carrier leases tower space on a UScellular owned tower. As of December 31, 2023, there were 7,000 cell sites in service of which UScellular owned 4,373.
4

TDS TELECOM OPERATIONS
General
TDS Telecom provides communications services to 1.2 million connections in 32 states through its high-quality fiber, coaxial and copper networks. TDS Telecom operates in one reportable segment, and its operating markets are located in a mix of small to mid-sized urban, suburban and rural communities throughout the United States.
Operating Strategy and Community Focus
TDS Telecom invests in high-quality networks, services and products, with the constant focus on delivering outstanding customer service. Through its investments, TDS Telecom intends to improve its broadband services in its incumbent markets and extend its footprint into new expansion markets. TDS Telecom intends to augment that broadband growth by bundling with video, voice and other value-added services.
A key strategic initiative for TDS Telecom, subject to the availability of capital, is investing in fiber to provide broadband speeds of up to 8 Gigabits per second (Gbps). Fiber builds in strategically selected locations allow TDS Telecom to deliver more robust residential and commercial products in its incumbent markets that have historically utilized copper and coaxial cable technologies and to target growth in attractive, growing markets to increase its total footprint. In 2023, TDS Telecom continued to invest in its fiber market expansions in Wisconsin and the Pacific Northwest. TDS Telecom may seek to grow its operations through investments in fiber and through the acquisition of and/or partnership with businesses that support and complement its existing markets or by creating entirely new clusters of markets in attractive locations. To optimize its portfolio and raise capital, TDS is exploring opportunities to divest certain markets.
TDS Telecom believes that being a good corporate citizen is fundamental to its long-term success. TDS Telecom is committed to growing with its communities and meeting the needs of customers through great products and services, sponsorships, fundraising, and volunteering. TDS Telecom serves its local communities by financially supporting local projects to serve those in need and by providing TDS Telecom associates with paid time off each year to volunteer. TDS Telecom believes serving its local communities through donations and volunteerism aligns with its corporate values and commitments to its customers, associates, and communities.
Technology
TDS Telecom continues to upgrade and enhance its networks by utilizing various technologies to improve levels of performance and provide additional speed and security to increase value for its customers. The TDS network consists of a highly reliable IP-based broadband network to facilitate the integration of broadband, video and voice services.
In order to provide IP-based services, TDS Telecom has developed and deployed an inter-regional data routing infrastructure using owned and leased fiber capacity which allows it to leverage its 100-gigabit core network. This configuration, along with the continued development of an IP network that interconnects substantially all the existing service territories, provides redundancy and allows for next generation IP service offerings.
TDS Telecom utilizes centralized monitoring and management of its core network to reduce costs and improve service reliability. TDS Telecom continues to standardize equipment and processes to increase efficiency in maintaining its network. Network standardization has aided TDS Telecom in operating its 24-hours-a-day/7-days-per-week Network Management Centers, which continuously monitor the network to proactively identify, minimize, and correct network faults prior to any customer impact.
Customers, Services and Products
Residential. TDS Telecom residential customer operations provide high-speed broadband, video, and voice services. These services are bundled at competitive prices to encourage cross-selling within the customer base and to attract and retain new customers. Approximately 56% of residential customers have at least two services.
Broadband: TDS Telecom offers reliable high-speed internet connections and whole-home Wi-Fi. Fiber technology is being deployed to select markets to provide internet speeds of up to 8 Gbps. In certain non-fiber markets, TDS Telecom has deployed fiber-to-the-node and copper-based vectoring/pair bonding technology to increase data speeds reaching up to 100 Mbps. DOCSIS 3.1 technology is utilized across nearly all cable markets and offers speeds of up to 1 Gbps. Whole-home Wi-Fi security and support services are available to enhance customers’ high-speed internet experience.
Video: TDS Telecom provides advanced home TV entertainment that includes basic channels and premium programming available in high-definition television combined with a digital video recording (DVR) service. TDS Telecom offers an integrated cloud television platform called TDS TV+ which enhances the customer experience by combining linear and non-linear programming, adding interfaces to mobile devices, personalized content recommendations, and network-based DVR functionality. TDS TV+ offers video content and features not available on existing TDS platforms. In certain markets, TDS Telecom partners with a satellite TV provider to offer digital television.
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Voice: Call plans include local and long-distance telephone service, Voice over Internet Protocol (VoIP) and enhanced services like Find-Me/Follow-Me, collaboration, instant messaging and more. Many features are bundled with calling plans to give customers the best value. Voice offerings continue to be impacted by the industry-wide decline in access lines and TDS Telecom expects to continue to experience erosion in voice connections due to competition from alternative technologies.
Commercial. TDS Telecom commercial customer operations provide secure and reliable broadband, IP-based services, and hosted voice and video collaboration services to small- and medium-sized businesses. TDS Telecom's commercial service focus is to lead with broadband bundled with a voice product and video solution.
Wholesale. TDS Telecom’s wholesale operations include carrying data and voice traffic on TDS Telecom's networks from other interexchange carriers. Federal Connect America Fund (CAF), including ACAM, E-ACAM, and state Universal Service Fund (USF) revenues, which support the cost of providing communication services in underserved high- cost areas, are also included in wholesale service revenues.
Marketing, Sales and Distribution Channels and Customer Service
Marketing. TDS Telecom’s marketing plan is focused on acquiring, retaining and growing customer relationships by maintaining a high-quality network, providing outstanding customer service, and offering a comprehensive portfolio of services and products built around customer needs with a local focus. TDS Telecom uses door-to-door selling, digital marketing, targeted mailings and mass advertising to market services and products. TDS Telecom differentiates itself from competitors using a hyper-localized and community-based sales and marketing effort to maximize broadband penetration.
Sales and Distribution Channels. TDS Telecom operates and uses sales contact centers, direct sales forces, retail stores, sales agents and an online platform to sell services and products.
Customer Service. TDS Telecom manages customer retention by focusing on outstanding customer service through extensive training of front-line sales and support associates.
Competition
TDS Telecom faces broadband, video, and voice competition from wireline providers, cable providers, fiber overbuilders, VoIP providers, satellite providers, wireless providers and providers using other emerging technologies.
TDS Telecom continues to develop and maintain an efficient cost structure to enhance its ability to compete with price-based initiatives from competitors. In addition to price, TDS Telecom competes based on a variety of factors including the reliability of its network, faster broadband speeds, the diversity and range of its product offerings and its outstanding customer service. TDS Telecom is building fiber in select expansion and incumbent markets.
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TDS — REGULATION
TDS’ operations are subject to federal, state and local regulation. Key regulatory considerations are discussed below.
UScellular
The construction, operation and transfer of wireless systems in the United States are regulated to varying degrees by the FCC pursuant to the Communications Act of 1934, as amended (Communications Act). The FCC currently does not require wireless carriers to comply with a number of statutory provisions otherwise applicable to common carriers that provide, originate or terminate interstate or international telecommunications. However, the FCC has enacted regulations governing construction and operation of wireless systems, licensing (including renewal of wireless spectrum licenses) and technical standards for the provision of wireless services under the Communications Act.
Wireless spectrum licenses segmented by geographic areas are granted by the FCC. The completion of acquisitions, involving the transfer of control of all or a portion of a wireless system, requires prior FCC approval. The FCC determines on a case-by-case basis whether an acquisition of wireless spectrum licenses is in the public interest. Wireless spectrum licenses are granted generally for a ten-year term or, in some cases, for a twelve-year or fifteen-year term. The FCC establishes the standards for conducting comparative renewal proceedings between a wireless license holder seeking renewal of its license and challengers filing competing applications. All of UScellular’s wireless spectrum licenses for which it applied for renewal since 1995 have been renewed. UScellular expects to continue to meet the criteria of the FCC’s license renewal process.
As part of its data services, UScellular provides internet access. Such internet access services may be subject to different regulatory requirements than other wireless services.
Although the Communications Act generally pre-empts state and local governments from regulating the entry of, or the rates charged by wireless carriers, certain state and local governments regulate other terms and conditions of wireless services, including billing, termination of service arrangements, imposition of early termination fees, advertising, network outages, the use of handsets while driving, zoning, land use, privacy, data security and consumer protection. Further, the Federal Aviation Administration also regulates the siting, lighting and construction of transmitter towers and antennae.
TDS Telecom
The FCC generally exercises jurisdiction over all facilities of, and services offered by, TDS Telecom’s Incumbent Local Exchange Carriers (ILEC) as telecommunications common carriers, to the extent they provide, originate or terminate interstate or international telecommunications. State public utility commissions generally exercise jurisdiction over intrastate telecommunications facilities and services. In addition, the ILECs are subject to various other state and local laws, including laws relating to privacy, data security and consumer protection.
The Communications Act requires, among other things, that telecommunications common carriers offer interstate services when requested at just and reasonable rates at terms and conditions that are non-discriminatory. Maximum rates for regulated interstate services are prescribed by the FCC. In many states, local rates paid by end user customers and intrastate access charges paid by carriers continue to be subject to state commission approval. The FCC regulations also cover matters such as technical operations, administrative requirements, consumer protection, access by people with disabilities, customer privacy and content.
TDS Telecom’s Competitive Local Exchange Carriers (CLEC), expansion and cable operations are subject to similar but reduced regulation compared to ILECs.
Providing video services requires TDS Telecom to obtain franchises from state or local governmental authorities to occupy public rights of way with network facilities. These franchises are nonexclusive and typically limited in time, contain various conditions and limitations, and provide for the payment of fees to the local authority, determined generally as a standard percentage of revenues. TDS Telecom expects to continue to meet the criteria of the state or local government authorities' franchise renewal process.
General
Reference is made to Item 7 of this Form 10-K under “Regulatory Matters” for information regarding any other significant recent developments and proposals relating to regulatory matters.
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HUMAN CAPITAL RESOURCES
Company and Culture
TDS had approximately 8,800 full-time and part-time associates as of December 31, 2023. The culture at TDS is based upon the fundamental belief that TDS’ long-term success is inextricably tied to associate engagement and high ethical standards. TDS’ Code of Conduct sets forth expectations for ethical behavior across the enterprise and provides the guiding principles by which all associates must abide in all business activities. TDS provides a competitive wage and benefits package, a safe workplace, and an environment where associates feel engaged and a sense of belonging. TDS regularly surveys its associates – those surveys have consistently shown that associates have strong engagement and high overall job satisfaction.
Diversity, Equity, and Inclusion
TDS wants each associate to make a meaningful contribution and leverages diversity and inclusion efforts to harness the talent and potential of its associates. These efforts strive to value and connect diverse people and perspectives, amplify their voices, and enable business performance through strategic collaboration. TDS is committed to demonstrating equity and fairness through the inclusion of diverse associates, customers, and suppliers. Additionally, TDS sponsors Associate Resource Groups to promote dynamic community experiences that align with TDS’ vision and values, increase associate engagement and empowerment, and support professional development. TDS endeavors to encourage a broad diversity of thoughts, ideas and the innovation needed to move the business forward.
Training
Since its founding, TDS has been committed to associate development, including for emerging and existing leaders, which is critical to its success. TDS provides job specific, diversity and inclusion, safety, and fraud awareness training for all associates – and also offers programs that further develop its associates including educational assistance, developmental assignments, and mentoring programs.
Community
TDS is committed to supporting and enhancing the communities it serves through local and philanthropic initiatives that enrich the lives of those living where it operates and where its associates live, work and play. This includes a focus on addressing gaps in STEM education by connecting tomorrow’s innovators with the resources they need today to help shape their future opportunities. TDS is addressing the digital divide and providing critical resources in local communities, and encourages associates to volunteer and support local organizations and community groups. Local communities are at the center of TDS’ businesses, and TDS takes great pride in giving back to the people and places that contribute to its sustainability and long-term success.
TDS — OTHER ITEMS
Company Information
TDS’ website address is www.tdsinc.com. TDS files with, or furnishes to, the Securities and Exchange Commission (SEC) annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, as well as various other information. Investors may access, free of charge, through the Investor Relations portion of the website, TDS' annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), as soon as reasonably practical after such material is filed electronically with the SEC. The public may also view electronic filings of TDS by accessing SEC filings at www.sec.gov.
UScellular’s website address is www.uscellular.com. UScellular files with, or furnishes to, the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, as well as various other information. Investors may access, free of charge, through the Investor Relations portion of the website, UScellular’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practical after such material is filed electronically with the SEC. The public may also view electronic filings of UScellular by accessing SEC filings at www.sec.gov.
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Item 1A. Risk Factors
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT

This Annual Report on Form 10-K, including exhibits, contains statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, that address activities, events or developments that TDS intends, expects, projects, believes, estimates, plans or anticipates will or may occur in the future are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include those set forth below under “Risk Factors” in this Form 10-K. Each of the following risks could have a material adverse effect on TDS’ business, financial condition or results of operations. However, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document. Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements. TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. The reader should carefully consider the following risk factors and other information contained in, or incorporated by reference into, this Form 10-K to understand the material risks relating to TDS’ business.
Operational Risk Factors
1)Intense competition involving products, services, pricing, promotions and network speed and technologies could adversely affect TDS’ revenues or increase its costs to compete.
Competition in the wireless industry is intense and is expected to remain intense in the future due to multiple factors such as increasing market penetration, introduction of new products, new competitors, increasing promotional aggressiveness and changing prices. There is competition in service plan pricing; handsets and other devices; promotional discounts; network quality, coverage, speed and technologies, including 5G technology; distribution; new entrants; bundled services and products, such as content; and other categories. In particular, wireless competition includes aggressive service plan and device pricing, including pricing for unlimited plans, which could result in switching activity and churn and limit TDS’ ability to monetize future growth in data usage. In addition, competition based on network speed may increase as customer demand for higher speeds increases. These competitive factors have resulted in losses of retail connections and TDS anticipates that they will continue to do so. Similarly, these competitive pressures have caused the prices for services and products to decline and the costs to compete to increase and TDS anticipates that they will continue to do so.
TDS’ wireless competitors include national or global telecommunications and cable wireless companies that are larger than TDS, possess greater financial and other resources, possess more extensive coverage areas and more spectrum within their coverage areas, and market other services with their communications services that TDS does not offer. TDS and its competitors are actively marketing their deployment of 5G and, as a result, are raising consumer awareness of the technology. If TDS cannot keep pace with its competitors in deploying 5G or other comparable offerings, or if TDS' deployment of 5G technology does not result in significant incremental revenues, TDS' financial condition, results of operations and ability to do business could continue to be adversely affected. In addition, new technologies, services and products that are more commercially effective than the technologies, services and products offered by TDS may be developed and create new sources of competition. Further, new technologies may be proprietary such that TDS is not able to adopt such technologies. There can be no assurance that TDS will be able to compete successfully in this environment.
Sources of competition to TDS’ wireless business typically include at least four competing wireless telecommunications service providers across TDS' service area, wireline telecommunications service providers, cable wireless companies, resellers (including MVNOs), and providers of alternative telecommunications services. In particular, competition from cable wireless companies has increased in recent periods, as they have continued to expand their presence in the wireless industry and have offered more competitive pricing. Many of TDS’ wireless competitors and other competitors have substantially greater financial, technical, marketing, sales, purchasing and distribution resources than TDS.
Competition in the tower industry is also challenging, as TDS competes with public and private tower companies, wireless carrier tower alliances, private equity sponsored tower companies, and owners of non-communications sites such as utility towers, rooftop structures, water towers, and other alternative structures. Many of these competitors are larger than TDS, have greater financial and other resources, have more advantageous tower locations than TDS, have greater capacity on their towers, and have more scale and coverage nationwide than TDS – such factors could result in an inability to acquire or build additional towers, difficulty in leasing tower space, or cause lease revenue to decline in the future.
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Competition in the wireline industry is intensified with the increasing deployment of broadband technologies, MVNO plans offering wireless services, and enhanced video services. Incumbent carriers are upgrading existing networks with higher speed broadband services and overbuilders are deploying broadband to compete with legacy incumbent carriers. Overbuilding activity is increasing with investments by venture capital and private equity and with additional access to state and federal funding. Sources of competition to TDS’ wireline and cable businesses include, but are not limited to, other cable companies, fiber overbuilders, incumbent carriers, wireless communications providers, resellers of local exchange services, interexchange carriers, satellite broadband providers, access providers, VoIP providers and providers using other emerging technologies. Customers may choose to substitute their wireline services using satellite, wireless and other technologies, which may be preferred to technologies offered by TDS. If TDS cannot keep pace with its competition in deploying higher speed technologies, offering competitive products and services at competitive prices and providing attractive video content options, TDS' financial condition, results of operations or ability to do business could be adversely affected.
TDS’ wireline business intends to introduce MVNO plans offering wireless services to customers in its service areas. TDS’ MVNO offerings will be reliant on third parties to deliver adequate wireless service to these customers and may not be able to successfully compete with wireless options provided by other industry competitors who have access to greater scale and financial resources than TDS. There is no guarantee that these MVNO plans will attract or retain broadband customers.
2)Changes in roaming practices or other factors could cause TDS’ roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact TDS’ ability to service its customers in geographic areas where TDS does not have its own network, which could have an adverse effect on TDS’ business, financial condition or results of operations.
TDS’ revenues include roaming revenues related to the use of TDS’ network by other wireless carriers’ customers who travel within TDS’ coverage areas. Changes in FCC rules or actions, industry practices or the network footprints of carriers could have an adverse effect on TDS’ roaming revenues. For example, the expansion of other carriers' network coverage in TDS' footprint and/or lower roaming rates with other carriers could continue to decrease future roaming revenues for TDS.
Similarly, TDS’ wireless customers can access another carrier’s network automatically only if the other carrier allows TDS’ customers to roam on its network. TDS relies on roaming agreements with other carriers to provide roaming capability to its customers and expand its product offerings in areas of the U.S. and internationally outside of its service areas and to improve coverage within selected areas of TDS’ network footprint. Although TDS has entered into roaming agreements with national carriers, there is no assurance that TDS will be able to maintain these agreements and/or enter into new agreements with other carriers to provide roaming services or that it will be able to do so on reasonable or cost-effective terms.
Some competitors may be able to obtain lower roaming rates than TDS is able to obtain because they have larger data usage or call volumes or may be able to reduce roaming charges by providing service principally over their own networks. In addition, the quality and availability of services that a wireless carrier delivers to a TDS customer while roaming may be inferior or limited in comparison to the service TDS provides. TDS’ rate of adoption of new technologies, such as those enabling high-speed data and voice services, could affect its ability to enter into or maintain roaming agreements with other carriers. In addition, TDS’ wireless technology may not be compatible with technologies used by other carriers, which may limit the ability of TDS to enter into voice or data roaming agreements with such other carriers. Carriers whose customers roam on TDS’ network could switch their business to new operators, limit their high-speed usage or move traffic to their own networks. Changes in roaming usage patterns, rates for roaming usage, or roaming relationships with other carriers could continue to have an adverse effect on TDS’ roaming revenues and/or expenses.
To the extent that other carriers expand their networks in TDS’ service areas, the roaming arrangements between TDS and these other carriers could become less strategic for them. That is, these other carriers will have fewer or less extensive geographic areas where roaming services are required by their customers and, as a result, the roaming arrangements could become less critical to serving their customer base. This presents a risk to TDS in that, to the extent TDS is not able to enter into economically viable roaming arrangements with these other carriers, this could impact TDS’ ability to service its customers in geographic areas where TDS does not have its own network.
3)An inability to attract diverse people of outstanding talent throughout all levels of the organization, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on TDS' business, financial condition or results of operations.
TDS’ businesses are highly technical and competition for skilled talent in the telecommunications industry is intense. Due to competition, limited supply, and/or rising wage levels for qualified management, technical, sales and other personnel, there can be no assurance that TDS will be able to continue to attract and/or retain people of outstanding potential for the development of its business. In addition, a person's expectation of an in-office, remote or hybrid working model could negatively affect talent acquisition and retention. The loss of existing key personnel due to competition, wage levels and/or retirements, the failure to recruit highly skilled and diverse personnel in a timely and cost-effective manner, the inability to foster and maintain a diverse and inclusive work environment, or failure to maintain its commitment to environmental and social responsibility could have an adverse effect on TDS’ business, financial condition or results of operations.
The market for highly skilled leaders in the telecommunications industry also is extremely competitive. The future success of TDS and its businesses depends in substantial part on TDS’ ability to recruit, hire, motivate, develop, and retain talented and highly skilled leaders for all areas of its organization. The loss of any of TDS’ key leaders could have an adverse effect on its business, financial condition or results of operations. Effective succession planning is also important to TDS’ long-term success. Failure to ensure effective transfer of knowledge and smooth transition involving key employees could also adversely affect TDS’ business, financial condition and results of operations.
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4)TDS’ smaller scale relative to larger competitors that may have greater financial and other resources than TDS could cause TDS to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.
TDS has smaller scale efficiencies compared to larger competitors. TDS may be unable to compete successfully with larger companies that have substantially greater financial, technical, marketing, sales, purchasing and distribution resources or that offer more services than TDS, which could adversely affect TDS’ revenues and costs of doing business. Specifically, TDS’ smaller scale relative to most of its competitors could have the following impacts, among others:
Low profit margins and returns on investment that are below TDS’ cost of capital;
Increased operating and capital expenditure costs due to lack of leverage with vendors;
Inability to timely and successfully deploy 5G or other wireless technologies, execute on fiber expansion plans, or to realize significant incremental revenues from their deployment;
Inability to meet build-out requirements of state and federal broadband programs;
Limited opportunities for strategic partnerships as potential partners are focused on telecommunications companies with greater scale and scope;
For TDS' wireless business, limited opportunities for bundling wireless service with other services such as home internet;
Limited access to content, as well as limited ability to obtain acceptably priced content and programming;
Limited access to devices as larger competitors enter into exclusive device arrangements;
Consumer expectations that TDS provides lower-priced wireless offerings relative to larger competitors;
Limited ability to influence industry standards;
Limited ability to acquire or build additional towers;
Reduced ability to invest in research and development of new services and products;
Lower risk tolerance when evaluating new markets;
Vendors may deem TDS non-strategic and not develop or sell services and products to TDS, particularly where technical requirements differ from those of larger companies;
Limited access to intellectual property; and
Other limited opportunities such as for software development or third-party distribution.
TDS’ businesses depend on access to content for data and access to new wireless devices being developed by vendors. TDS’ ability to obtain such access depends in part on other parties. If TDS is unable to obtain timely access to new content or wireless devices being developed by vendors, its business, financial condition or results of operations could be adversely affected.
5)Changes in various business factors, including changes in demand, consumer preferences and perceptions, price competition, churn from customer switching activity and other factors, could have an adverse effect on TDS’ business, financial condition or results of operations.
Changes in any of several factors could have an adverse effect on TDS’ business, financial condition or results of operations. These factors include, but are not limited to:
Demand for or usage of services, particularly data services;
Demand for leasing space on a tower;
Consumer preferences, including internet speed and type of wireless devices;
Consumer perceptions of network quality and performance;
Consumer expectations for self-service options through digital means;
Competitive pressure to deliver higher speed;
Competitive pressure from promotional activity;
The pricing of services, including an increase in price-based competition;
The pricing of tower leases that can be charged to third parties;
Inflationary pressures on costs without corresponding price increases for TDS' services;
Access to and cost of programming;
The overall size and growth rate of TDS’ customer base;
Penetration rates;
Churn rates;
Selling expenses;
Net customer acquisition and retention costs;
Customers’ ability to pay for services and the potential impact on bad debts expense;
Roaming agreements and rates;
Third-party vendor support;
Capacity constraints;
The mix of services and products offered by TDS and purchased by customers; and
The costs of providing services and products.
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6)A failure by TDS to obtain access to adequate radio spectrum to meet current or anticipated future needs and/or to accurately predict future needs for radio spectrum could have an adverse effect on TDS’ business, financial condition or results of operations.
TDS’ wireless business depends on the ability to use portions of the radio spectrum licensed by the FCC. TDS could fail to obtain access to sufficient spectrum capacity, including spectrum needed to support 5G and future technologies, in new or existing markets, whether through FCC auctions or other transactions, to meet the anticipated spectrum requirements associated with increased demand for existing services, especially increases in customer demand for data services and network speed, and to enable deployment of next-generation services. TDS believes that this increased demand for data services and network speed reflects a trend that will continue for the foreseeable future. Data usage, including usage under unlimited plans, could exceed current forecasts resulting in a need for increased investment in spectrum or other network components. TDS could fail to accurately forecast its future spectrum requirements considering changes in plan offerings, customer usage patterns, spectrum build-out and technology requirements and the expanded demands of new services. Such a failure could have an adverse impact on the quality of TDS’ services or TDS’ ability to roll out such future services in some markets, could require that TDS curtail existing services to make spectrum available for next-generation services, or TDS could be effectively capped in increasing market share. As spectrum constrained providers gain customers, they use up their network capacity. Since they lack spectrum, they can respond to demand only by adding cell sites, which is capital intensive, adds fixed operating costs, is limited by zoning considerations, and ultimately may not be cost effective. Further, a spectrum constrained provider will generally not be able to achieve the data speeds that other competitors with more spectrum are able to provide.
TDS may acquire access to spectrum through a number of alternatives, including acquisitions, exchanges and participation in spectrum auctions. TDS may participate in spectrum auctions conducted by the FCC in the future. As required by law, the FCC has conducted auctions for wireless spectrum licenses to use some parts of the radio spectrum. The decision to conduct auctions, and the determination of what spectrum frequencies will be made available for auction and the determination of geographic size of wireless spectrum licenses, are made by the FCC pursuant to laws that it administers. The FCC currently does not have authority to conduct spectrum auctions. The FCC may not be able to allocate spectrum sufficient to meet the demands of all those wishing to obtain wireless spectrum licenses for new market entry or to expand their spectrum holdings to meet the expanding demand for data services or to address other spectrum constraints. Due to factors such as geographic size of wireless spectrum licenses and auction bidders that may raise prices beyond acceptable levels, TDS may not be successful in FCC auctions in obtaining access to the spectrum that it believes is necessary to implement its business and technology strategies.
Access to wireless spectrum licenses won in FCC auctions may not be available on a timely basis. Such access is dependent upon the FCC actually granting wireless spectrum licenses won, which can be rescinded or delayed for various reasons, including but not limited to exceeding spectrum ownership and attribution limits, and safety concerns due to interference with other spectrum bands. Furthermore, newly licensed spectrum may not be available for immediate use since the radio operations of incumbent users, including in some cases government agencies, may need to be relocated to other portions of the radio spectrum, and/or the newly licensed spectrum may be subject to sharing and coordination obligations. TDS also may seek to acquire radio spectrum through purchases and exchanges with other spectrum licensees. However, TDS may not be able to acquire sufficient spectrum through these types of transactions, and TDS may not be able to complete any of these transactions on favorable terms.
7)Advances or changes in technology could render certain technologies used by TDS obsolete, could put TDS at a competitive disadvantage, could reduce TDS’ revenues or could increase its costs of doing business.
The telecommunications industry is experiencing significant changes in technologies and services expected by customers, as evidenced by evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new services and products, and enhancements and changes in end-user requirements and preferences. Advances in technology could change the amount of tower space needed by wireless companies. Also, high-speed wireless networks (wireless broadband) represent a product offering and opportunity for TDS’ wireless business, but also represent a risk for TDS’ wireline and cable businesses as customers may elect to substitute their wireline or cable broadband connection with wireless broadband. Further, fixed-mobile bundled services that combine wireline broadband services with mobile services represent a competitive threat. If the trend toward bundling continues, TDS is at a competitive disadvantage compared to larger competitors, including cable companies, the national wireless carriers and other potential large new entrants with much greater financial and other resources in adapting to such bundling. Future technological changes or advancements may enable other technologies to equal or exceed TDS’ current levels of service and render its system infrastructure obsolete. TDS may not be able to respond to such changes and implement new technology on a timely or cost-effective basis, which could reduce its revenues or increase its costs of doing business.
8)Complexities associated with deploying new technologies present substantial risk and TDS’ investments in unproven technologies may not produce the benefits that TDS expects.
TDS' wireless business is deploying 5G technology in its network and has launched commercial 5G services in portions of substantially all of its markets. The continued deployment of 5G technology will require substantial additional investments in TDS' wireless networks to remain competitive in the industry. Transition to 5G or other new technologies involves significant time, cost and risk, and anticipated products and revenues may not be realized. Furthermore, the wireless business experiences rapid technology changes and new services and products. If TDS fails to effectively deploy new wireless technologies, services or products on a timely basis, this could have an adverse impact on TDS’ business, financial condition and results of operations.
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Furthermore, it is not certain that TDS’ investments in various new, unproven technologies and the related service and product offerings will be effective. The markets for some of these services, products and solutions may still be emerging and the overall potential for these markets, including revenues to be realized, may be uncertain. If customer demand for these new services, products and solutions does not develop as expected, TDS’ business, financial condition or results of operations could be adversely affected.
9)Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or wireless spectrum licenses and/or expansion of TDS’ businesses could have an adverse effect on TDS’ business, financial condition or results of operations.
As part of TDS’ operating strategy, TDS from time to time may be engaged in the acquisition, divestiture or exchange of companies, businesses, strategic properties, wireless spectrum or other assets. TDS may change the markets in which it operates and the services that it provides through such acquisitions, divestitures and/or exchanges. In general, TDS may not disclose the negotiation of such transactions until a definitive agreement has been reached. These transactions commonly involve a number of risks, including:
Identification of attractive companies, businesses, properties, spectrum or other assets for acquisition or exchange, and/or the selection of TDS’ businesses or assets for divestiture or exchange;
Competition for acquisition targets and the ability to acquire or exchange businesses at reasonable prices;
Inability to make acquisitions that would achieve sufficient scale or substantial benefit to be competitive with competitors with greater scale;
Possible lack of buyers for businesses or assets that TDS desires to divest and the ability to divest or exchange such businesses or assets at reasonable prices;
Ability to negotiate favorable terms and conditions for acquisitions, divestitures and exchanges;
Significant expenditures associated with acquisitions, divestitures and exchanges;
Risks associated with integrating new businesses or markets, including risks relating to cybersecurity and privacy;
Ability to enter markets in which TDS has limited or no direct prior experience and competitors have stronger positions;
Ability to integrate and manage TDS’ different business operations and services, including wireless services, traditional wireline services and cable businesses;
Uncertain revenues and expenses associated with acquisitions or the entry into new expansion markets, with the result that TDS may not realize the growth in revenues, anticipated cost structure, profitability, or return on investment that it expects;
Difficulty of integrating the technologies, services, products, operations and personnel of the acquired businesses, or of separating such matters for divested businesses or assets;
Diversion of management’s attention;
Disruption of ongoing business;
Impact on TDS’ cash and available credit lines for use in financing future growth and working capital needs;
Inability to retain key personnel;
Inability to successfully incorporate acquired assets and rights into TDS’ service offerings;
Inability to utilize acquired wireless spectrum;
Inability to maintain uniform standards, controls, procedures and policies;
Possible conditions to approval by the FCC, the Federal Trade Commission and/or the Department of Justice; and
Impairment of relationships with employees, customers or vendors.
No assurance can be given that TDS will be successful with respect to its acquisition, divestiture or exchange strategies or initiatives.
10)A failure by TDS to complete significant network construction and systems implementation activities as part of its plans to improve the quality, coverage, capabilities and capacity of its network, support and other systems and infrastructure could have an adverse effect on its operations.
TDS’ business plan includes significant construction activities and enhancements to its network, support and other systems and infrastructure. Additionally, the deployment of new wireless technologies, including 5G, will require substantial investments in TDS' wireless network. As TDS deploys, expands and enhances its wireless network, it may need to acquire additional spectrum. Also, as TDS continues to build out and enhance its network, TDS must, among other things, continue to:
Lease, acquire or otherwise obtain rights to cell and switch sites, transport facilities or other facilities;
Obtain zoning variances or other local governmental or third-party approvals or permits for network construction;
Complete and update the radio frequency design, including cell site design, frequency planning and network optimization, for each of TDS’ wireless markets; and
Improve, expand and maintain customer care, network management, billing and other financial and management systems.
Any difficulties encountered in completing these activities, as well as problems in vendor equipment availability, labor availability, inflation or other pressures on costs, technical resources, system performance or system adequacy, could delay implementation and deployment of new technologies, delay expansion of operations and product capabilities in new or existing markets or result in increased costs. Failure to successfully deploy new technologies, including 5G, and/or build-out and enhance TDS’ network, support facilities and other systems and infrastructure in a cost-effective manner, and in a manner that satisfies consumers' expectations for quality and coverage, could have an adverse effect on TDS’ business, business prospects, financial condition or results of operations.
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TDS’ wireline and cable businesses are devoting a substantial amount of capital for fiber overbuilds and expansion into new markets. TDS is often reliant on third parties for items such as construction, franchises, utility locates and easements, aerial attachments and other permits. Difficulties with third-party performance could cause delays or additional costs. Any difficulties in supply chain constraints, labor shortages, project management, engineering or construction resources could delay construction and expansion of operations in new or existing markets or result in increased costs. Failure to complete its fiber deployment activities could have an adverse effect on TDS’ business, business prospects, financial condition or results of operations.
11)Difficulties involving third parties with which TDS does business, including changes in TDS’ relationships with or financial or operational difficulties, including supply chain disruptions, of key suppliers or independent agents and third-party national retailers who market TDS’ services, could adversely affect TDS’ business, financial condition or results of operations.
TDS has relationships with independent agents and third-party national retailers who market TDS’ services.
TDS depends upon certain vendors to provide it with equipment, services and content that meet its quality and cost requirements on a timely basis to continue its network construction and upgrades, and to operate its business. TDS depends upon certain vendors to provide it with wireless devices that meet its quality and cost requirements on a timely basis to support sales. TDS does not have operational or financial control over such key suppliers and has limited influence with respect to the manner in which these key suppliers conduct their businesses. Further, key suppliers may experience supply chain challenges beyond their control that result in difficulties providing the services and products typically requested by TDS on a timely basis. If these key suppliers (i) experience product availability shortages, (ii) require extended lead times to fulfill orders, (iii) experience financial difficulties or file for bankruptcy or experience other operational difficulties or (iv) deem TDS non-strategic and do not develop or sell services and products to TDS, particularly where technical requirements differ from those of larger companies, they may not provide equipment, services or content to TDS on a timely basis, or at all, or they may otherwise fail to honor their obligations to TDS. Furthermore, consolidation among key suppliers may result in less competition, higher prices, the discontinuation of equipment and/or services typically purchased by TDS or the discontinuation of support for equipment owned by TDS.
Operation of TDS’ supply chain and management of its device inventory and network equipment, including customer premise equipment, require accurate forecasting of customer growth and demand. If overall demand for devices and network equipment or the mix of demand for devices and network equipment is significantly different than TDS’ expectations, TDS could face inadequate or excess supplies of particular models of devices and network equipment. This could result in lost sales opportunities or an excess supply of device inventory or network equipment that may need to be written down, depreciated, or disposed of for a loss. If network equipment is not available or requires extended lead times due to supply chain challenges, or if overall demand for services or the mix of demand for services is significantly different than TDS' expectations, TDS may not be able to adequately maintain a network that supports customer demand. Further, TDS' supply chain could be disrupted unexpectedly by raw material shortages, wars, natural disasters, disease or other factors. Supply chain disruptions may result in limited component availability, constraints on certain devices and network equipment, extended lead times, delayed construction and additional uncertainty.
Also, TDS has other arrangements with third parties, including arrangements pursuant to which TDS outsources certain support and billing functions to third-party vendors, including service providers and third-party wireless network operators for TDS' wireline MVNO product. Operational problems associated with such functions, including any failure by the vendor to provide the required level of service under the outsourcing arrangements, including possible cyber-attacks or other breaches of network or information technology security, data protection or privacy, could have adverse effects on TDS’ business, financial condition or results of operations.
12)A failure by TDS to maintain flexible and capable telecommunication networks or information technologies, or a material disruption thereof, could have an adverse effect on TDS’ business, financial condition or results of operations.
TDS relies extensively on its telecommunication networks and information technologies to operate and manage its businesses, process transactions and summarize and report results. These networks and technologies are subject to obsolescence and, consequently, must be upgraded, replaced and/or otherwise enhanced over time. Enhancements must be more flexible and dependable than ever before. All of this is capital intensive and challenging.
The increased provision of data services, including IPTV, has introduced significant demands on TDS’ network and also has increased complexities related to network management which creates an increased level of risk related to quality of service and data speeds. This is due to the fact that many customers increasingly rely on data communications to execute and validate transactions. As a result, redundancy and geographical diversity of TDS’ network facilities are critical to providing uninterrupted service. Also, the speed of repair and maintenance procedures in the event of network interruptions is critical to maintaining customer satisfaction. TDS’ ability to maintain high-quality, uninterrupted service to its customers is critical, particularly given the increasingly competitive environment and customers’ ability to choose other service providers.
In addition, TDS’ networks and information technologies and the networks and information technologies of vendors on which TDS relies are subject to damage or interruption due to various events, including power outages, computer, network and telecommunications failures, computer viruses, security breaches, hackers and other cyber security risks, catastrophic events, natural disasters, severe weather, adverse climate changes, errors or unauthorized actions by employees and vendors, flawed conversion of systems, disruptive technologies and technology changes.
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Financial Risk Factors
13)Uncertainty in TDS’ or UScellular's future cash flow and liquidity or the inability to access capital, deterioration in the capital markets, changes in interest rates, other changes in TDS’ or UScellular's performance or market conditions, changes in TDS’ or UScellular's credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which has required and could in the future require TDS to reduce or delay its construction, development or acquisition programs, reduce the amount of wireless spectrum licenses acquired, divest assets or businesses, and/or reduce or cease share repurchases and/or the payment of dividends.
TDS and its subsidiaries operate capital-intensive businesses. Historically, TDS has used internally-generated funds and also has obtained substantial funds from external sources for general corporate purposes. In the past, TDS’ existing cash and investment balances, funds available under its financing agreements, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for TDS to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions. There is no assurance that this will be the case in the future. TDS expects to engage in additional financing activity to fund its current fiber plans and E-ACAM builds. TDS’ liquidity would be adversely affected if, among other things, cash flows from operations significantly decline, TDS is unable to obtain short or long-term financing on acceptable terms, TDS is not able to comply with certain debt covenants or TDS is unsuccessful in negotiating related consents, waivers, or amendments, interest rates increase, TDS makes significant spectrum license purchases, TDS makes significant capital investments, TDS makes significant business acquisitions, the Los Angeles SMSA Limited Partnership (LA Partnership) and other minority-owned partnerships discontinue or significantly reduce distributions compared to historical levels, or Federal USF and/or other regulatory support payments decline. TDS' liquidity may also be adversely affected by changes in the liquidity of UScellular that impact UScellular's or TDS' ability to comply with certain debt covenants or if UScellular or TDS is unsuccessful in negotiating related consents, waivers, or amendments. These or other developments at UScellular may negatively affect TDS' ability to obtain short or long-term financing on acceptable terms or obtain favorable terms and conditions from third-party vendors.
TDS’ credit rating currently is sub-investment grade. TDS has incurred negative free cash flow (defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and less Cash paid for software license agreements) at times in the past and expects to incur negative free cash flow in future periods. TDS may require substantial additional capital for, among other uses, acquisitions of providers of cable, wireless or wireline telecommunications services or products, or other businesses, spectrum license or system acquisitions, capital expenditures, the repurchase of shares, the payment of dividends, or making additional investments including new technologies and fiber deployments. There can be no assurance that sufficient funds will continue to be available to TDS or its subsidiaries on terms or at prices acceptable to TDS. Insufficient cash flows from operating activities, changes in TDS' credit ratings, defaults of the terms of debt or credit agreements, uncertainty of access to capital, deterioration in the capital markets, reduced regulatory capital at banks which in turn limits their ability to lend, other changes in the performance of TDS or in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its acquisition, capital expenditure and business development programs, reduce the acquisition and development of wireless spectrum licenses, divest assets, reduce or cease share repurchases and/or the payment of dividends. Specifically, TDS Telecom has elected to slow the pace of its fiber deployment and reduce or defer planned capital expenditures as a means to lower its funding needs. TDS cannot provide assurance that circumstances that could have a material adverse effect on its liquidity or capital resources will not occur.
UScellular's credit rating from nationally recognized credit agencies may impact TDS' credit rating as, given UScellular's ownership structure, the rating agencies often consider rating actions related to TDS and UScellular in tandem. To the extent that UScellular's credit rating is downgraded, it may adversely affect TDS' credit rating, which could result in the impacts described above.
14)TDS has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt.
TDS has a significant amount of indebtedness and may need to incur additional indebtedness. TDS’ level of indebtedness could have important consequences. For example, it (i) may limit TDS’ ability to obtain additional financing for working capital, capital expenditures or general corporate purposes, particularly if the ratings assigned to its debt securities by rating organizations are revised downward; (ii) will require TDS to dedicate a substantial portion of its cash flow from operations to the payment of interest and principal on its debt, thereby reducing the funds available to TDS for other purposes including expansion through acquisitions, capital expenditures, acquisition of wireless spectrum licenses, payment of dividends, marketing spending and expansion of its business; and (iii) may limit TDS’ flexibility to adjust to changing business and market conditions and make TDS more vulnerable to a downturn in general economic conditions as compared to TDS’ competitors. TDS’ ability to make scheduled payments on its indebtedness or to refinance it will depend on its financial and operating performance which, in turn, is subject to prevailing economic and competitive conditions and other factors beyond its control. A substantial portion of TDS' debt is subject to variable interest rates, which has increased interest expense in recent periods and TDS will continue to be vulnerable to unfavorable changes in market interest rates.
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The TDS and UScellular revolving credit agreements, the TDS and UScellular term loan agreements, the TDS and UScellular export credit financing agreements and the UScellular receivables securitization agreement require TDS or UScellular, as applicable, to comply with certain affirmative and negative covenants, including certain financial covenants. Depending on the actual financial performance of TDS and UScellular, there is a risk that TDS and/or UScellular could fail to satisfy the required financial covenants. This risk has increased with TDS' recent financial and operating performance. If TDS or UScellular breach a financial or other covenant of any of these agreements, it would result in a default under that agreement, and could involve a cross-default under other debt instruments. This could in turn cause the affected lenders to accelerate the repayment of principal and accrued interest on any outstanding debt under such agreements and, if they choose, terminate the agreement. If appropriate, TDS and UScellular may request an amendment to one or more credit agreements to adjust financial covenants to provide additional financial flexibility to TDS and UScellular, and may also seek other changes to such agreements. There is no assurance that the lenders will agree to any amendments. If the lenders agree to amendments, this may result in additional payments or higher interest rates payable to the lenders and/or additional restrictions. Restrictions with such debt instruments may limit TDS’ operating and financial flexibility.
As a result, TDS’ level of indebtedness, restrictions contained in debt instruments and/or possible breaches of covenants, defaults, and acceleration of indebtedness could have an adverse effect on TDS’ business, financial condition, revenues, results of operations and cash flows.
15)TDS has entered into a new Senior Secured Credit Agreement that imposes certain restrictions on its business and operations that may affect its ability to operate its business and make payments on its indebtedness.
TDS entered into a senior secured credit agreement on September 28, 2023 (the Senior Secured Credit Agreement). The Senior Secured Credit Agreement provides TDS with a $300 million secured term loan credit facility for general corporate purposes. Pursuant to the Senior Secured Credit Agreement, TDS granted a perfected security interest in certain assets of TDS, including, without limitation, and subject to customary exceptions, (i) 26,417,915 fully paid and nonassessable Common Shares, par value $1 per share, of UScellular, (ii) equity interests in certain wholly-owned subsidiaries of TDS and (iii) all or substantially all of TDS’ personal property that does not constitute equity interests. The Senior Secured Credit Agreement is also secured by a perfected security interest in certain assets of certain wholly-owned subsidiaries of TDS that are also guarantors of the indebtedness incurred under the Senior Secured Credit Agreement, including, without limitation, and subject to customary exceptions, (i) equity interests in certain wholly-owned subsidiaries of such subsidiaries and (ii) all or substantially all of the personal property of such guarantor subsidiaries that does not consist of equity interests.
The Senior Secured Credit Agreement includes representations and warranties, covenants, events of default and other terms and conditions that are substantially similar to TDS’ existing term loan and revolving credit agreements. Under the Senior Secured Credit Agreement, TDS is required to comply with certain financial covenants. Depending on the actual financial performance of TDS, there is a risk that TDS could fail to satisfy the required financial covenants. A failure to comply with the financial covenants in the Senior Secured Credit Agreement could result in an event of default, which, if not cured or waived could have a material adverse effect on TDS' business, financial condition, and profitability. Upon the occurrence and during the continuance of an event of default under the Senior Secured Credit Agreement, the lenders and certain parties to the Senior Secured Credit Agreement may require all borrowings outstanding under the Senior Secured Credit Agreement to be due and payable. Further, upon the occurrence of and during the continuance of an event of default, such parties may exercise remedies with respect to the collateral securing the Senior Secured Credit Agreement, which remedies may include foreclosing upon, credit bidding and/or liquidating such collateral. If TDS' indebtedness were to be accelerated, there can be no assurance that the assets would be sufficient to repay such indebtedness in full.
16)TDS’ assets and revenue are concentrated primarily in the U.S. telecommunications industry. Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.
The U.S. telecommunications industry is facing significant change and an uncertain operating environment. TDS’ focus on the U.S. telecommunications industry, together with its sub-scale position relative to larger competitors with greater resources within the industry, may represent increased risk for investors due to the lack of diversification. This could have an adverse effect on TDS’ ability to attain and sustain long-term, profitable revenue growth and could have an adverse effect on its business, financial condition or results of operations.
17)TDS has significant investments in entities that it does not control. Losses in the value of such investments could have an adverse effect on TDS’ financial condition or results of operations.
TDS has significant investments in entities that it does not control, including equity investments and interests in certain variable interest entities. TDS’ interests in such entities do not provide TDS with control over the business strategy, financial goals, network build-out plans or other operational aspects of these entities. TDS cannot provide assurance that these entities will operate in a manner that will increase or maintain the value of TDS’ investments, that TDS’ proportionate share of income from these investments will continue at the current level in the future or that TDS will not incur losses from the holding of such investments. Losses in the values of such investments or a reduction in income from these investments could adversely affect TDS’ financial condition or results of operations. In addition, certain investments have historically contributed significant cash flows to TDS and a reduction or suspension of such cash flows could adversely affect TDS’ financial condition.
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Regulatory, Legal and Governance Risk Factors
18)TDS and UScellular have initiated a process to explore a range of strategic alternatives for UScellular and there can be no assurance that any strategic alternative will be successfully identified or completed, that any such strategic alternative will result in additional value for TDS and its shareholders, or that the process will not have an adverse impact on TDS' business or financial statements.
On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies decided to initiate a process to explore a range of strategic alternatives for UScellular. This comprehensive process could result in a diversion of management's attention from TDS' existing business; a failure to achieve financial and operating objectives; the failure to retain key personnel, customers, business partners or contracts; and volatility in TDS' stock price. In addition, this process has already resulted in the incurrence of significant expense - this is expected to continue. It is possible that any outcomes of the strategic alternatives review could change the composition of UScellular's long-lived assets, how UScellular may derive cash flows from these assets and may result in uncertainty related to asset recoverability. This may impact UScellular's asset groups for purposes of assessing wireless spectrum licenses and/or property, plant and equipment for impairment and may require in the near term an impairment assessment to be performed which may result in an impairment. There can be no assurance that such comprehensive process will result in any strategic alternative of any kind being successfully identified or completed or that the process or any outcomes of the process will not have an adverse impact on TDS' business or financial statements.
19)Failure by TDS to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect TDS’ business, financial condition or results of operations.
TDS’ operations are subject to varying degrees of regulation by the FCC, state public utility commissions and other federal, state and local regulatory agencies and legislative bodies. Various regulatory agencies and legislative bodies could implement different policies with respect to many federal laws and regulations, including but not limited to changes to fiscal and tax policies, trade policies, tariffs on import goods and climate change. New or amended regulatory requirements could increase TDS’ costs and divert resources from other initiatives. Adverse decisions, increased regulation, or changes to existing regulation by regulatory bodies could negatively impact TDS’ operations by, among other things, restricting energy consumption or access to grid electricity, permitting greater competition or limiting TDS’ ability to engage in certain sales or marketing activities, or retention and recruitment of skilled resources. New regulatory mandates or enforcement may require unexpected or increased capital expenditures, lost revenues, higher operating expenses or other changes. Court decisions and rulemakings could have a substantial impact on TDS’ operations, including rulemakings on broadband access to the internet, intercarrier access compensation, state and federal support funding, court decisions regarding the FCC's universal service fund program, and treatment of VoIP traffic or unbundled network elements or, more broadly, the scope of authority of the federal agencies that regulate TDS. Litigation and different objectives among federal and state regulators could create uncertainty and delay TDS’ ability to respond to new regulations. Further, wireless spectrum licenses and cable franchise rights are subject to renewal by a granting authority and could be revoked in the event of a violation of applicable laws or regulatory requirements. Also, although FCC rules relating to net neutrality have been repealed, on October 19, 2023, the FCC adopted a draft Notice of Proposed Rulemaking (NPRM) that proposes to reinstate such rules and reclassify broadband internet access service as a telecommunications service under Title II of the Communications Act of 1934. In the interim, some state legislators and regulators are seeking to or have already enacted state net neutrality laws and regulations, and it is unclear whether more states will seek to do so now that the FCC has announced its intent to reinstate net neutrality rules. Interpretation and application of these rules and of rules relating to other recent NPRMs issued by the FCC (for example, with respect to digital discrimination), including conflicts between federal and state laws, may result in additional costs for compliance and may limit opportunities to derive profits from certain business practices or resources.
TDS attempts to timely and fully comply with all regulatory requirements. However, TDS is unable to predict the future actions of the various legislative and regulatory bodies that govern TDS, and such actions could have adverse effects on TDS’ business.
20)TDS receives significant regulatory support, and is also subject to numerous surcharges and fees from federal, state and local governments – the applicability and the amount of the support and fees are subject to great uncertainty, including the ability to pass through certain fees to customers, and this uncertainty could have an adverse effect on TDS’ business, financial condition or results of operations.
Telecommunications companies may be designated by states, or in some cases by the FCC, as an Eligible Telecommunications Carrier (ETC) to receive universal service support payments if they provide specified services in “high-cost” areas. UScellular has been designated as an ETC in certain states and received $92 million in high-cost support for service to high-cost areas in 2023. While there is uncertainty, UScellular expects that regulatory support payments will likely decline in future periods, and there is no assurance that UScellular will qualify for future regulatory support programs. TDS Telecom also received support under the Connect America Fund support program. The ACAM and E-ACAM programs have build-out requirements that may not be met, which would result in penalties, loss of support and/or deferral of future revenues. In 2023, TDS Telecom received $110 million under all federal regulatory support programs. There is no assurance that regulatory support payments will continue for TDS Telecom, and no assurance that TDS Telecom will qualify for future regulatory support programs. If regulatory support is discontinued or reduced from current levels, or if receipt of future regulatory support is contingent upon making certain network-related expenditures, this could have an adverse effect on TDS’ business, financial condition or operating results and cash flows. Adding to this uncertainty are a series of court cases challenging the constitutionality of the universal service fund program that establishes and administers these regulatory support payments.
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Telecommunications providers pay a variety of surcharges and fees on their gross revenues from interstate and intrastate services, including USF fees and common carrier regulatory fees. The division of services between interstate services and intrastate services, including the divisions associated with Federal USF fees, is a matter of interpretation and in the future may be contested by the FCC or state authorities. The FCC in the future also may change the basis on which Federal USF fees are charged. The Federal government and many states also apply transaction-based taxes to sales of telecommunications services and products and to purchases of telecommunications services from various carriers. In addition, state regulators and local governments have imposed and may continue to impose various surcharges, taxes and fees on telecommunications services. The applicability of these surcharges and fees to TDS’ services is uncertain in many cases and jurisdictions may contest whether TDS has assessed and remitted those monies correctly. Periodically, state and federal regulators may increase or change the surcharges and fees TDS currently pays. In some instances, TDS passes through these charges to its customers. However, Congress, the FCC, state regulatory agencies or state legislatures may limit the ability to pass through transaction-based tax liabilities, regulatory surcharges and regulatory fees imposed on TDS to customers. TDS may or may not be able to recover some or all of those taxes from its customers and the amount of taxes may deter demand for its services or increase its cost to provide service.
21)Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on TDS’ business, financial condition or results of operations.
TDS is regularly involved in a number of legal and policy proceedings before the FCC and various state and federal courts. Such legal and policy proceedings can be complex, costly, protracted and highly disruptive to business operations by diverting the attention and energies of management and other key personnel.
The assessment of legal and policy proceedings is a highly subjective process that requires judgments about future events. Additionally, amounts ultimately received or paid upon settlement or resolution of litigation and other contingencies may differ materially from amounts accrued in the financial statements. Depending on a range of factors, these or similar proceedings could impose restraints on TDS’ current or future manner of doing business.
22)The possible development of adverse precedent in litigation or conclusions in professional or environmental studies to the effect that potentially harmful emissions from devices or network equipment, including but not limited to radio frequencies emitted by wireless signals or due to contamination from network cabling, may cause harmful health or environmental consequences, including cancer, tumors or otherwise harmful impacts, or may interfere with various electronic medical devices or frequencies used by other industries, could have an adverse effect on TDS’ wireless and/or wireline business, financial condition or results of operations.
Media reports and certain professional studies have suggested that certain potentially harmful emissions from devices or network equipment, including but not limited to radio frequencies emitted by wireless signals or due to contamination from network cabling, may cause harmful health or environmental consequences, including cancer, tumors or otherwise harmful impacts, and may interfere with various electronic medical devices, including hearing aids and pacemakers. There may also be safety concerns related to frequencies used by wireless devices interfering with frequencies used by other industries, including but not limited to, the concerns of the Federal Aviation Administration regarding potential interference of 5G deployment with altimeters used by aircraft, which could impact deployment of certain wireless spectrum. TDS is a party to and may in the future be a party to lawsuits against wireless carriers and other parties claiming damages for alleged health effects, including cancer or tumors, arising from wireless phones, radio frequency transmitters, or harmful emissions from network equipment. Concerns over radio frequency emissions may discourage use of wireless devices or expose TDS to potential litigation. In addition, the FCC or other regulatory authorities may adopt regulations in response to concerns about radio frequency or harmful network equipment emissions. Any resulting decrease in demand for wireless services, costs of litigation and damage awards or regulation could have an adverse effect on TDS’ business, financial condition or results of operations.
In addition, some studies have indicated that some aspects of using a wireless device while driving may impair a driver's attention in certain circumstances, making accidents more likely. These concerns could lead to potential litigation relating to accidents, deaths or serious bodily injuries.
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23)Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent TDS from using necessary technology to provide products or services or subject TDS to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on TDS’ business, financial condition or results of operations.
TDS faces possible effects of industry litigation relating to patents, other intellectual property or otherwise, that may restrict TDS’ access to devices or network equipment critical to providing services to customers. If technology that TDS uses in products or services were determined by a court to infringe a patent or other intellectual property right held by another person, TDS could be precluded from using that technology and could be required to pay significant monetary damages. TDS also may be required to pay significant royalties to such person to continue to use such technology in the future. The successful enforcement of any intellectual property rights, or TDS’ inability to negotiate a license for such rights on acceptable terms, could force TDS to cease using the relevant technology and offering services incorporating the technology. Any litigation to determine the validity of claims that TDS’ products or services infringe or may infringe intellectual property rights of another, regardless of their merit or resolution, could be costly and divert the effort and attention of TDS’ management and technical personnel. Regardless of the merits of any specific claim, TDS cannot give assurance that it would prevail in litigation because of the complex technical issues and inherent uncertainties in intellectual property litigation. Although TDS generally seeks to obtain indemnification agreements from vendors that provide it with technology, there can be no assurance that any claim of infringement will be covered by an indemnity or that TDS will be able to recover all or any of its losses and costs under any available indemnity agreements. Any claims of infringement of intellectual property and proprietary rights of others could prevent TDS from using necessary technology to provide its services or subject TDS to expensive intellectual property litigation or monetary penalties.
24)Certain matters, such as control by the TDS Voting Trust and provisions in the TDS Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of TDS or have other consequences.
The TDS Restated Certificate of Incorporation and the TDS bylaws contain provisions which may serve to discourage or make more difficult a change in control of TDS without the support of the TDS Voting Trust and the TDS Board of Directors or without meeting various other conditions.
The TDS Restated Certificate of Incorporation authorizes the issuance of different series of common stock, which have different voting rights. The TDS Series A Common Shares have the power to elect approximately 75% (less one) of the directors and have ten votes per share in matters other than the election of directors. The TDS Common Shares (with one vote per share) vote as a separate group only with respect to the election of 25% (plus one) of the directors. In addition, the total percentages of voting power in matters other than the election of directors of the Series A Common Shares and Common Shares are fixed, at 56.7% and 43.3%, respectively, subject to adjustment due to changes in the number of outstanding Series A Common Shares.
A substantial majority of the outstanding TDS Series A Common Shares are held in the TDS Voting Trust which expires on June 30, 2035. The TDS Voting Trust was created to facilitate the long-standing relationships among the certificate holders. By virtue of the number of shares held by them, the voting trustees have the power to elect eight directors based on the current TDS Board of Directors’ size of twelve directors, and control a majority of the voting power of TDS with respect to matters other than the election of directors.
The existence of the TDS Voting Trust is likely to deter any potential unsolicited or hostile takeover attempts or other efforts to obtain control of TDS and may make it more difficult for shareholders to sell shares of TDS at higher than market prices. The trustees of the TDS Voting Trust have advised TDS that they intend to maintain the ability to keep or dispose of voting control of TDS.
The TDS Restated Certificate of Incorporation also authorizes the TDS Board of Directors to designate and issue TDS Undesignated Shares in one or more classes or series of preferred or common stock from time to time. Generally, no further action or authorization by the shareholders is necessary prior to the designation or issuance of the additional TDS Undesignated Shares authorized pursuant to the TDS Restated Certificate of Incorporation unless applicable laws or regulations would require such approval in a given instance. Such TDS Undesignated Shares could be issued in circumstances that would serve to preserve control of TDS’ then existing management.
In addition, the TDS Restated Certificate of Incorporation includes a provision which authorizes the TDS Board of Directors to consider various factors, including effects on customers, taxes, and the long-term and short-term interests of TDS, in the context of a proposal or offer to acquire or merge the corporation, or to sell its assets, and to reject such offer if the TDS Board of Directors determines that the proposal is not in the best interests of the corporation based on such factors.
The provisions of the TDS Restated Certificate of Incorporation and the TDS bylaws and the existence of various classes of capital stock could prevent shareholders from profiting from an increase in the market value of their shares as a result of a change in control of TDS by delaying or preventing such change in control.
The provisions of the TDS Restated Certificate of Incorporation and the existence of different classes of capital stock and voting rights could result in the exclusion of TDS Common Shares from certain major stock indices at some point in the future, unless TDS is grandfathered by such stock indices or qualifies for some other exception.
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General Risk Factors
25)TDS has experienced, and in the future expects to experience, cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on TDS' business, financial condition or results of operations.
TDS experiences cyber-attacks of varying degrees on a regular basis. These include cyber-attacks intended to wrongfully obtain private and valuable information, or cause other types of malicious events, including denial of service attacks which may cause TDS' services to be disrupted or unavailable to customers. The increased number of associates working remotely increases risks associated with data handling and vulnerability management. The rapid evolution and increased adoption of artificial intelligence technologies may intensify TDS' cybersecurity risk. TDS maintains administrative, technical and physical controls, as well as other preventative actions, to reduce the risk of security breaches. Although to date TDS has not discovered a material security breach, these efforts may be insufficient to prevent a material security breach stemming from future cyber-attacks including ransomware. If TDS’ or its vendors’ networks and information technology are not adequately adapted to changes in technology or are damaged or fail to function properly, and/or if TDS’ or its vendors’ security is breached or otherwise compromised, TDS could suffer adverse consequences, including theft, destruction or other loss of critical and private data, including customer and/or employee data, interruptions or delays in its operations, inaccurate billings, inaccurate financial reporting, and significant costs to remedy the problems. If TDS’ or its vendors’ systems become unavailable or suffer a security breach of customer or other data, TDS may be required to expend significant resources and take various actions to address the problems, including notification under data privacy laws and regulations, may be subject to fines, sanctions and litigation, and its reputation and operating results could be adversely affected. TDS continues to experience denial of service attacks. Although TDS has implemented and continues to enhance its protection and recovery measures in response to such attacks, these efforts may be insufficient to prevent a material denial of service attack in the future. See Item 1C. Cybersecurity of this Form 10-K for additional information.
26)Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede TDS’ access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues and lower operating income and cash flows, which would have an adverse effect on TDS’ business, financial condition or results of operations.
Disruptions in the credit and financial markets, declines in consumer confidence, increases in unemployment, declines in economic growth, increased tariffs on import goods, sudden increases in inflation and uncertainty about corporate earnings could have a significant negative impact on the U.S. and global financial and credit markets and the overall economy. Such events could have an adverse impact on financial institutions resulting in limited access to capital and credit for many companies. Furthermore, economic uncertainties make it very difficult to accurately forecast and plan future business activities. Changes in economic conditions, changes in financial markets, changes in U.S. trade policies, deterioration in the capital markets or other factors could have an adverse effect on TDS’ business, financial condition, revenues, results of operations and cash flows.
27)The impact of public health emergencies on TDS' business is uncertain, but depending on duration and severity could have a material adverse effect on TDS' business, financial condition or results of operations.
Public health emergencies pose the risk that TDS or its associates, agents, partners and suppliers may be unable to conduct business activities for an extended period of time and/or provide the level of service expected. TDS' ability to attract customers, maintain an adequate supply chain and execute on its business strategies and initiatives could be negatively impacted by public health emergencies. Additionally, public health emergencies could cause increased unemployment and an economic downturn, both of which could negatively impact TDS. The extent of the impact of public health emergencies on TDS' business, financial condition and results of operations will depend on the severity and duration of the emergency, actions taken by governmental authorities and other possible direct and indirect consequences, all of which are uncertain and cannot be predicted.
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Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
The TDS information security program aligns with the National Institute of Standards and Technology (NIST) cybersecurity framework. Risk assessments are conducted periodically leveraging this standard and are integrated into the TDS Enterprise Risk Management (ERM) program. The assessment results are used to drive continuous improvement in the TDS cybersecurity control environment, as well as to manage potential data security risks of third-party service providers. TDS assesses the threat and vulnerability landscape using various commercial, government, vendor and publicly available information sources and tools. TDS manages these evolving risks through ongoing investments in the security program including active monitoring of the internal data environment and the environments of third-party service providers who manage sensitive data. In addition, TDS Information Technology leaders conduct regular cyber incident simulations to ensure preparedness in the event of a cyber-attack. TDS leverages external parties to perform independent assessments and tests of security controls in the environment.
TDS’ Information Technology Security leaders are responsible for assessing and managing cybersecurity risks. Management has a depth of cybersecurity experience focused on increasing the organization's resilience to security threats and stays current on new developments through continuing education and monitoring of the cybersecurity landscape. The TDS environment is monitored for potential security threats and security events are investigated and acted on to minimize potential risk to the environment.
The full Board of Directors engages in oversight of TDS' cybersecurity risks. The Board of Directors receives regular updates from management on technology and security updates and TDS’ assessment of cybersecurity threats and mitigation plans. The TDS Audit Committee oversees the processes over internal controls and financial reporting that includes controls and procedures that are designed to ensure that significant cybersecurity incidents are communicated to both senior management and the Audit Committee. Cybersecurity is also discussed with the Technology Advisory Group of the Board of Directors as warranted, at least on an annual basis.
Item 2. Properties
TDS has properties located throughout the United States. As of December 31, 2023, TDS’ gross investment in property, plant and equipment was as follows:
162


UScellular’s local business offices, cell sites, cell site equipment, connectivity centers, data centers, call centers and retail stores are located primarily in UScellular’s operating markets. These properties are either owned or leased by UScellular, one of its subsidiaries, or the partnership, limited liability company or corporation which holds the license issued by the FCC.
TDS Telecom owns or leases its physical assets consisting of cable and telephone distribution networks, headends, network electronic equipment, customer premises equipment, land and buildings.
Parent and Other fixed assets consist of assets, which are either owned or leased, at TDS Corporate, HMS, and Suttle-Straus.


As of December 31, 2023, the gross investment in property, plant and equipment was $9,560 million at UScellular, $5,737 million at TDS Telecom and $315 million at Parent & Other. See Note 9 — Property, Plant and Equipment in the Notes to Consolidated Financial Statements for additional information.

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Item 3. Legal Proceedings
TDS is involved or may be involved from time to time in legal proceedings before the FCC, other regulatory authorities, and/or various state and federal courts. If TDS believes that a loss arising from such legal proceedings is probable and can be reasonably estimated, an amount is accrued in the financial statements for the estimated loss. If only a range of loss can be determined, the best estimate within that range is accrued; if none of the estimates within that range is better than another, the low end of the range is accrued. The assessment of the expected outcomes of legal proceedings is a highly subjective process that requires judgments about future events. The legal proceedings are reviewed at least quarterly to determine the adequacy of accruals and related financial statement disclosures. The ultimate outcomes of legal proceedings could differ materially from amounts accrued in the financial statements. See Note 14 — Commitments and Contingencies in the Notes to Consolidated Financial Statements for further information.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock Information
TDS' Common Shares are listed on the New York Stock Exchange under the symbol “TDS.” As of January 31, 2024, the last trading day of the month, TDS Common Shares were held by 1,561 record owners, and the Series A Common Shares were held by 64 record owners.
TDS paid quarterly dividends per outstanding share of $0.185 in 2023, $0.180 in 2022 and $0.175 in 2021. TDS increased the dividend per share to $0.190 in the first quarter of 2024. TDS has paid cash dividends on its common stock since 1974. It is uncertain at this time how the strategic alternatives review for UScellular, TDS' available opportunities to reinvest in its businesses, or TDS' ongoing liquidity needs, may impact the decisions of the TDS Board of Directors regarding the declaration of future dividends.
The Common Shares of United States Cellular Corporation, an 83%-owned subsidiary of TDS, are listed on the New York Stock Exchange under the symbol “USM.”
Stock Performance Graph
The following chart provides a comparison of TDS’ cumulative total return to shareholders (stock price appreciation plus dividends) during the previous five years to the returns of the Standard & Poor's 500 Composite Stock Price Index and the Dow Jones U.S. Telecommunications Index.
TDS Stock Performance Graph.jpg
Note: Cumulative total return assumes reinvestment of dividends.

 201820192020202120222023
TDS Common Shares (NYSE: TDS)$100 $80.02 $60.57 $67.89 $37.15 $69.21 
S&P 500 Index100 131.49 155.68 200.37 164.08 207.21 
Dow Jones U.S. Telecommunications Index100 127.88 120.31 109.89 103.57 107.20 
The comparison above assumes $100.00 invested at the close of trading on the last trading day of 2018, in TDS Common Shares, S&P 500 Index and the Dow Jones U.S. Telecommunications Index.
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Dividend Reinvestment Plan
TDS’ dividend reinvestment plans provide its common shareholders with a convenient and economical way to participate in the future growth of TDS. Holders of record of ten (10) or more Common Shares may purchase Common Shares with their reinvested dividends at a five percent discount from market price. Common Shares may also be purchased on a monthly basis through optional cash payments by participants in this plan. The initial ten (10) shares cannot be purchased directly from TDS. An authorization card and prospectus will be mailed automatically by the transfer agent to all registered record holders with ten (10) or more shares. Once enrolled in the plan, there are no brokerage commissions or service charges for purchases made under the plan. 
Issuer Purchases of Equity Securities
On August 2, 2013, the Board of Directors of TDS authorized, and TDS announced by Form 8-K, a $250 million stock repurchase program for TDS Common Shares. Depending on market conditions, such shares may be repurchased in compliance with Rule 10b-18 of the Exchange Act, pursuant to Rule 10b5-1 under the Exchange Act, or pursuant to accelerated share repurchase arrangements, prepaid share repurchases, private transactions or as otherwise authorized. This authorization does not have an expiration date. TDS did not determine to terminate the foregoing Common Share repurchase program, or cease making further purchases thereunder, during the fourth quarter of 2023.
TDS determines whether to repurchase shares from time to time based on many considerations, including cash needed for other known or possible requirements, the stock price, market conditions, debt rating considerations, business forecasts, business plans, macroeconomic conditions, share issuances under compensation plans, provisions in governing and legal documents and other legal requirements, and other facts and circumstances. Subject to these considerations and to legal requirements, TDS may approve the repurchase of its shares from time to time when circumstances warrant.
The maximum dollar value of shares that may yet be purchased under this program was $132 million as of December 31, 2023. There were no purchases made by or on behalf of TDS, and any open market purchases made by any "affiliated purchaser" (as defined by the SEC) of TDS, of TDS Common Shares during the fourth quarter of 2023.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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TDSLogo.jpg
Telephone and Data Systems, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Executive Overview
The following Management’s Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements and notes of Telephone and Data Systems, Inc. (TDS) for the year ended December 31, 2023, and with the description of TDS’ business included herein. Certain numbers included herein are rounded to millions for ease of presentation; however, certain calculated amounts and percentages are determined using the unrounded numbers.
This report contains statements that are not based on historical facts, which may be identified by words such as “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects,” “will” and similar expressions. These statements constitute and represent “forward looking statements” as this term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward looking statements. See the disclosure under the heading Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement elsewhere in this report for additional information.
The accounting policies of TDS conform to accounting principles generally accepted in the United States of America (GAAP). However, TDS uses certain “non-GAAP financial measures” in the MD&A. A discussion of the reasons TDS determines these metrics to be useful and reconciliations of these measures to their most directly comparable measures determined in accordance with GAAP are included in the disclosure under the heading Supplemental Information Relating to Non-GAAP Financial Measures within the MD&A of this report.
The following MD&A omits discussion of 2022 compared to 2021. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in TDS' Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 16, 2023, for that discussion.
General
TDS is a diversified telecommunications company that provides high-quality communications services to approximately 6 million connections nationwide. TDS provides wireless services through its 83%-owned subsidiary, United States Cellular Corporation (UScellular). TDS also provides broadband, video and voice services through its wholly-owned subsidiary, TDS Telecommunications LLC (TDS Telecom). TDS operates entirely in the United States. See Note 19 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information about TDS' segments.

2023 Operating Revenues by Segment
2581
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TDS Mission and Strategy
TDS’ mission is to provide outstanding communications services to its customers and meet the needs of its shareholders, its people, and its communities. In pursuing this mission, TDS seeks to grow its businesses, create opportunities for its associates, support the communities it serves, and build value over the long term for its shareholders. Since its founding, TDS has been committed to bringing high-quality communications services to rural and underserved communities. TDS continues to make progress on developing and enhancing its Environmental, Social and Governance (ESG) program, including the publication of the most recent TDS ESG Report in July 2023, which is available on the TDS website.
TDS’ historical long-term strategy has been to re-invest the majority of its operating capital in its businesses to strengthen their competitive positions and financial performance, while also returning value to TDS shareholders primarily through the payment of a regular quarterly cash dividend. It is uncertain at this time how the strategic alternatives review for UScellular, TDS' available opportunities to reinvest in its businesses, or TDS' ongoing liquidity needs may impact TDS' long-term strategy, including with regard to the payment of dividends, in future periods.
During 2023, TDS paid regular quarterly cash dividends to common and preferred shareholders of $83 million and $70 million, respectively. TDS increased the dividend per Common Share paid to its investors by 3% in 2023 and in February 2024, TDS increased its first quarter dividend per Common Share another 3%. During 2023, TDS repurchased 545,990 Common Shares for $6 million at an average cost per share of $10.09. As of December 31, 2023, the maximum dollar value of TDS Common Shares that may yet be purchased under TDS' program was $132 million. There is no assurance that TDS will continue to increase the dividend rate or pay dividends and no assurance that TDS will make any significant amount of share repurchases in the future.
Recent Development
On August 4, 2023, TDS and UScellular announced that the Boards of Directors of both companies have decided to initiate a process to explore a range of strategic alternatives for UScellular. During 2023, TDS incurred third-party expenses of $13 million related to the strategic alternatives review. At this time, TDS cannot predict the ultimate outcome of such process or estimate the potential impact of such process on the financial statements.
Significant Financial Matter
Net loss attributable to TDS common shareholders was $569 million and $7 million for the years ended December 31, 2023 and 2022, respectively. Such net losses include a non-cash charge related to the TDS Telecom Goodwill impairment of $547 million ($511 million, net of tax impacts), which was recorded during the three months ended December 31, 2023. The conclusion that this impairment was required was made in connection with the review and preparation of the financial statements. See Note 7 — Intangible Assets for a detailed discussion regarding the Goodwill impairment. Refer to Supplemental Information to Non-GAAP Financial Measures within this MD&A for a reconciliation of the Goodwill impairment, net of tax.
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Terms Used by TDS
The following is a list of definitions of certain industry terms that are used throughout this document:
4G LTE – fourth generation Long-Term Evolution, which is a wireless technology that enables more network capacity for more data per user as well as faster access to data compared to third generation (3G) technology.
5G – fifth generation wireless technology that helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency.
Account – represents an individual or business financially responsible for one or multiple associated connections. An account may include a variety of types of connections such as handsets and connected devices.
Alternative Connect America Cost Model (ACAM) – a USF support mechanism for certain carriers, which provides revenue support through 2028. This support comes with an obligation to build defined broadband speeds to a certain number of locations.
Auctions 105, 107, 108 and 110 – Auction 105 was an FCC auction of 3.5 GHz wireless spectrum licenses that started in July 2020 and concluded in September 2020. Auction 107 was an FCC auction of 3.7-3.98 GHz wireless spectrum licenses that started in December 2020 and concluded in February 2021. Auction 110 was an FCC auction of 3.45-3.55 GHz wireless spectrum licenses that started in October 2021 and concluded in January 2022. Auction 108 is an FCC auction of 2.5 GHz wireless spectrum licenses that started in July 2022 and concluded in August 2022.
Broadband Connections – refers to the individual customers provided internet access through various transmission technologies, including fiber, coaxial and copper.
Broadband Penetration – metric which is calculated by dividing total broadband connections by total service addresses.
Churn Rate – represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.
Connected Devices – non-handset devices that connect directly to the UScellular network. Connected devices include products such as tablets, wearables, modems, fixed wireless, and hotspots.
Coronavirus Aid, Relief, and Economic Security (CARES) Act – economic relief package signed into law on March 27, 2020 to address the public health and economic impacts of COVID-19, including a variety of tax provisions.
DOCSIS – Data Over Cable Service Interface Specification is an international telecommunications standard that permits the addition of high-bandwidth data transfer to an existing cable TV (CATV) system. DOCSIS 3.1 is a system specification that increases data transmission rates.
EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
Eligible Telecommunications Carrier (ETC) – designation by states for providing specified services in “high cost” areas which enables participation in universal service support mechanisms.
Enhanced Alternative Connect America Cost Model (E-ACAM) – a USF support mechanism for certain carriers, which provides revenue support through 2038. This support comes with an obligation to provide 100 megabits per second (Mbps) of download speed and 20 Mbps of upload speed (100/20 Mbps) to a certain number of locations.
Expansion Markets – markets utilizing fiber networks in areas where TDS does not serve as the incumbent service provider.
Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment and less Cash paid for software license agreements. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
Gross Additions – represents the total number of new connections added during the period, without regard to connections that were terminated during that period.
Incumbent Markets – markets where TDS is positioned as the traditional local telephone or cable company.
IPTV – internet protocol television.
Net Additions (Losses) – represents the total number of new connections added during the period, net of connections that were terminated during that period.
OIBDA – refers to operating income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information.
Postpaid Average Revenue per Account (Postpaid ARPA) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.
Postpaid Average Revenue per User (Postpaid ARPU) – metric which is calculated by dividing total postpaid service revenues by the average number of postpaid connections and by the number of months in the period.
Residential Revenue per Connection – metric which is calculated by dividing total residential revenue by the average number of residential connections and by the number of months in the period.
Retail Connections – individual lines of service associated with each device activated by a postpaid or prepaid customer. Connections are associated with all types of devices that connect directly to the UScellular network.
Service Addresses – number of single residence homes, multi-dwelling units, and business locations that are capable of being connected to the TDS network, based on best available information.
Universal Service Fund (USF) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in the United States.
Video Connections – represents the individual customers provided video services.
Voice Connections – refers to the individual circuits connecting a customer to TDS’ central office facilities that provide voice services or the billable number of lines into a building for voice services. 
28

VoLTE – Voice over Long-Term Evolution is a technology specification that defines the standards and procedures for delivering voice communications and related services over 4G LTE networks.
29

Results of Operations — TDS Consolidated
The following discussion and analysis compares financial results for the year ended December 31, 2023, to the year ended December 31, 2022
Year Ended December 31,202320222023 vs. 2022
(Dollars in millions)
Operating revenues   
UScellular$3,906 $4,169 (6)%
TDS Telecom1,028 1,020 %
All other1
226 224 %
Total operating revenues5,160 5,413 (5)%
Operating expenses   
UScellular3,767 4,100 (8)%
TDS Telecom1,551 954 63 %
All other1
256 237 %
Total operating expenses5,574 5,291 %
Operating income (loss)
   
UScellular139 69 N/M
TDS Telecom(523)66 N/M
All other1
(30)(13)N/M
Total operating income(414)122 N/M
Investment and other income (expense)   
Equity in earnings of unconsolidated entities159 159 
Interest and dividend income20 17 19 %
Interest expense(244)(174)(40)%
Other, net2 94 %
Total investment and other income (expense)(63)N/M
Income (loss) before income taxes(477)125 N/M
Income tax expense10 53 (81)%
Net income (loss)(487)72 N/M
Less: Net income attributable to noncontrolling interests, net of tax13 10 28 %
Net income (loss) attributable to TDS shareholders(500)62 N/M
TDS Preferred Share dividends69 69 
Net loss attributable to TDS common shareholders$(569)$(7)N/M
Adjusted OIBDA (Non-GAAP)2
$1,086 $1,080 %
Adjusted EBITDA (Non-GAAP)2
$1,267 $1,257 %
Capital expenditures3
$1,197 $1,285 (7)%
N/M - Percentage change not meaningful
1    Consists of corporate and other operations and intercompany eliminations.
2    Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
3    Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
Refer to individual segment discussions in this MD&A for additional details on operating revenues and expenses at the segment level.
30

Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities represents TDS’ share of net income from entities in which it has a noncontrolling interest and that are accounted for using the equity method or the net asset value practical expedient. TDS’ investment in the Los Angeles SMSA Limited Partnership (LA Partnership) contributed pre-tax income of $65 million for both 2023 and 2022. See Note 8 — Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.
Interest expense
Interest expense increased in 2023 due primarily to interest rate increases on variable rate debt. See Market Risk for additional information regarding maturities of long-term debt and weighted average interest rates.
Income tax expense
Income tax expense decreased in 2023 due primarily to the decrease in Income (loss) before income taxes driven by the impairment of Goodwill, a portion of which is amortizable for tax purposes, and therefore provides a reduction in deferred tax expense.
See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information.
Net income attributable to noncontrolling interests, net of tax
Year Ended December 31,20232022
(Dollars in millions)  
UScellular noncontrolling public shareholders’$9 $
Noncontrolling shareholders’ or partners’4 
Net income attributable to noncontrolling interests, net of tax$13 $10 
Net income attributable to noncontrolling interests, net of tax includes the noncontrolling public shareholders’ share of UScellular’s net income, the noncontrolling shareholders’ or partners’ share of certain UScellular subsidiaries’ net income and other TDS noncontrolling interests.
31

Earnings
(Dollars in millions)
2289







Net income (loss) decreased in 2023 due primarily to the impairment of the TDS Telecom Goodwill as well as lower operating revenues and higher interest expense, partially offset by lower cash operating and tax expenses. Adjusted EBITDA increased in 2023 due primarily to lower operating expenses, partially offset by lower operating revenues.
*Represents a non-GAAP financial measure. Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

32

USMLogo.jpg
UScellular OPERATIONS
Business Overview
UScellular owns, operates, and invests in wireless markets throughout the United States. UScellular is an 83%-owned subsidiary of TDS. UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a community focus.
OPERATIONS
10KUSM_Operating_2022Q3.jpg


Serves customers with 4.6 million retail connections including 4.1 million postpaid and 0.5 million prepaid connections
Operates in 21 states
Employs approximately 4,300 associates
Owns 4,373 towers
Operates 7,000 cell sites in service
33

UScellular Mission and Strategy
UScellular’s mission is to connect its customers to what matters most to them. This includes providing exceptional wireless communication services which enhance consumers’ lives, increase the competitiveness of local businesses, and improve the efficiency of government operations in the markets UScellular serves.
UScellular’s strategy is to attract and retain customers by providing a high-quality network, outstanding customer service, and competitive devices, plans and pricing - all provided with a local community focus. Strategic efforts include:
UScellular offers economical and competitively priced service plans and devices to its customers and is focused on increasing revenues from sales of related products such as device protection plans and from new services such as fixed wireless home internet. In addition, UScellular is focused on increasing tower rent revenues and expanding its solutions available to business and government customers.
UScellular continues to enhance its network capabilities, including by deploying 5G technology. 5G technology helps address customers’ growing demand for data services and creates opportunities for new services requiring high speed and reliability as well as low latency. UScellular's initial 5G deployment has predominantly used low-band spectrum to launch 5G services in portions of substantially all of its markets. During 2023, UScellular continued to invest in 5G with a focus on deployment of mid-band spectrum, which will largely overlap portions of areas already covered with low-band 5G service. 5G service deployed over mid-band spectrum will further enhance speed and capacity for UScellular's mobility and fixed wireless services.
UScellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its profitability. As part of this strategy, UScellular may seek attractive opportunities to acquire and divest wireless spectrum as deemed necessary.
34

Operational Overview — UScellular
38



As of December 31,20232022
Retail Connections – End of Period
Postpaid4,106,0004,247,000
Prepaid451,000493,000
Total4,557,0004,740,000

Year Ended December 31,202320222023 vs. 2022
Postpaid Activity and Churn
Gross Additions
Handsets339,000397,000(15)%
Connected Devices178,000162,00010 %
Total Gross Additions517,000559,000(8)%
Net Additions (Losses)
Handsets(145,000)(110,000)(32)%
Connected Devices7,000(23,000)N/M
Total Net Additions (Losses)(138,000)(133,000)(4)%
Churn
Handsets1.10 %1.12 %
Connected Devices2.77 %2.95 %
Total Churn1.31 %1.34 %
N/M - Percentage change not meaningful
Total postpaid handset net losses increased in 2023 due primarily to lower gross additions resulting from aggressive industry-wide competition.
Total postpaid connected device net additions increased in 2023 due primarily to higher demand for fixed wireless home internet as well as decreases in tablet and mobile hotspot churn.
Postpaid Revenue
Year Ended December 31,2023 2022 2023 vs. 2022
Average Revenue Per User (ARPU)$51.01 $50.14 2%
Average Revenue Per Account (ARPA)$130.91 $130.39 
Postpaid ARPU increased in 2023 due to favorable plan and product offering mix and an increase in device protection plan revenues, partially offset by an increase in promotional discounts.
Postpaid ARPA was relatively flat in 2023 due to the impacts to Postpaid ARPU, offset by a decrease in the number of connections per account.
35

Financial Overview — UScellular
The following discussion and analysis compares financial results for the year ended December 31, 2023, to the year ended December 31, 2022.
Year Ended December 31,
202320222023 vs. 2022
(Dollars in millions)   
Retail service1
$2,742 $2,793 (2)%
Inbound roaming32 67 (52)%
Other270 265 %
Service revenues3,044 3,125 (3)%
Equipment sales862 1,044 (17)%
Total operating revenues3,906 4,169 (6)%
System operations (excluding Depreciation, amortization and accretion reported below)740 755 (2)%
Cost of equipment sold988 1,216 (19)%
Selling, general and administrative1,368 1,408 (3)%
Depreciation, amortization and accretion656 700 (6)%
Loss on impairment of licenses N/M
(Gain) loss on asset disposals, net17 19 (9)%
(Gain) loss on sale of business and other exit costs, net (1)N/M
(Gain) loss on license sales and exchanges, net(2)— N/M
Total operating expenses3,767 4,100 (8)%
Operating income$139 $69 N/M
Net income$58 $35 67 %
Adjusted OIBDA (Non-GAAP)2
$818 $790 %
Adjusted EBITDA (Non-GAAP)2
$986 $956 %
Capital expenditures3
$611 $717 (15)%
N/M - Percentage change not meaningful
1UScellular recorded an adjustment to correct a prior period error related to the recognition of discounts for certain Prepaid customers, which decreased Service revenue by $5 million in 2023. This adjustment was not material to any of the periods impacted.
2Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
3Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
36

Operating Revenues
(Dollars in millions)
515


Service revenues consist of: 
Retail Service – Postpaid and prepaid charges for voice, data and value-added services and cost recovery surcharges
Inbound Roaming – Consideration from other wireless carriers whose customers use UScellular’s wireless systems when roaming
Other Service – Amounts received from the Federal USF, third-party tower rental revenues, miscellaneous other service revenues and Internet of Things (IoT)
Equipment revenues consist of:
Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors
Key components of changes in the statement of operations line items were as follows:
Total operating revenues
Retail service revenues decreased in 2023 primarily as a result of a decrease in average postpaid and prepaid connections, partially offset by an increase in Postpaid ARPU as previously discussed in the Operational Overview section.
Inbound roaming revenues decreased in 2023, primarily driven by lower data revenues resulting from lower rates.
Other service revenues increased in 2023, resulting from increases in tower rental revenues, partially offset by declines in miscellaneous revenues.
Equipment sales revenues decreased in 2023, due primarily to a decline in smartphone upgrades and gross additions, partially offset by a higher average price of new smartphone sales.
Wireless service providers have been aggressive promotionally and on price to attract and retain customers. This includes both traditional carriers and cable companies operating as mobile virtual network operators (MVNOs). UScellular expects promotional aggressiveness by traditional carriers and pricing pressures from cable companies to continue into the foreseeable future. Operating revenues and Operating income have been negatively impacted in current and prior periods, and may be negatively impacted in future periods, by competitive promotional offers to new and existing customers.
Total operating expenses
Total operating expenses in 2023 include $9 million of severance and related expenses associated with a reduction in workforce that was recorded in the first quarter of 2023. These severance expenses are included in System operations expenses and Selling, general and administrative expenses.
System operations expenses
System operations expenses decreased in 2023, due primarily to decreases in roaming and customer usage expenses, partially offset by an increase in maintenance, utility, and cell site expenses. The decrease in roaming expense was driven by a decrease in roaming rates partially offset by an increase in usage.
37

Cost of equipment sold
Cost of equipment sold decreased in 2023, due primarily to a decline in smartphone upgrades and gross additions, partially offset by a higher average cost per unit sold.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased in 2023, due primarily to decreases in bad debts expense, commissions, facilities and employee-related expenses, partially offset by an increase in advertising expenses as well as $8 million of expenses related to the strategic alternatives review.
Depreciation, amortization and accretion
Depreciation, amortization and accretion expenses decreased in 2023 due primarily to enhancements that extended the useful life of a software platform.
38

Telecom.jpg
TDS TELECOM OPERATIONS
Business Overview
TDS Telecom owns, operates and invests in high-quality networks, services and products in a mix of small to mid-sized urban, suburban and rural communities throughout the United States. TDS Telecom is a wholly-owned subsidiary of TDS and provides a wide range of broadband, video and voice communications services to residential, commercial and wholesale customers, with the constant focus on delivering outstanding customer service.
OPERATIONS
10QTelecomHoldings_2023Q4.jpg
Serves 1.2 million connections in 32 states.
Employs approximately 3,600 associates.
39

TDS Telecom Mission and Strategy
TDS Telecom's mission is to create a better world by providing high-quality communications services to connect people and businesses, support education, and strengthen communities.
TDS Telecom's strategic efforts include:
TDS Telecom strives to provide high-quality broadband services in its markets with the ability to provide value-added bundling with video and voice service options. TDS Telecom focuses on driving growth by investing in fiber deployment primarily in its expansion markets and also in its incumbent markets that have historically utilized copper and coaxial cable technologies.
TDS Telecom seeks to grow its operations by creating clusters of markets in attractive, growing locations and may seek to acquire and/or divest of assets to support its strategy.
40

Operational Overview — TDS Telecom
Total Service Address Mix
As of December 31,
1584





TDS Telecom increased its service addresses 12% from a year ago to 1.7 million as of December 31, 2023, through network expansion.
TDS Telecom offers 1Gig+ service to 72% of its total footprint as of December 31, 2023, compared to 66% a year ago.
As of December 31,202320222023 vs. 2022
Residential connections   
Broadband   
Wireline, Incumbent244,800249,100(2)%
Wireline, Expansion92,20056,10064 %
Cable202,900204,800(1)%
Total Broadband539,800510,000%
Video131,500135,300(3)%
Voice281,600291,600(3)%
Total Residential Connections952,900936,900%
Commercial connections210,200236,000(11)%
Total connections1,163,1001,173,000(1)%
Numbers may not foot due to rounding.
Total connections decreased due to legacy voice, video, and competitive local exchange carrier (CLEC) connections declines, partially offset by broadband connection growth.
A majority of TDS Telecom's residential customers take advantage of bundling options as 56% of customers subscribe to more than one service.
41


Residential Broadband Connections by Speed
As of December 31,
2437

Residential broadband customers continue to choose higher speeds with 76% taking speeds of 100 Mbps or greater and 16% choosing 1Gig+.

Residential Revenue per Connection
For the year ended December 31,
2642





Total residential revenue per connection increased 4% for 2023, due to price increases and product mix changes, partially offset by increased promotional activity.
42

Financial Overview — TDS Telecom
The following discussion and analysis compares financial results for the year ended December 31, 2023, to the year ended December 31, 2022.
Year Ended December 31,202320222023 vs. 2022
(Dollars in millions)   
Residential   
Wireline, Incumbent$352 $350 %
Wireline, Expansion75 49 53 %
Cable273 270 %
Total residential700 669 %
Commercial155 173 (10)%
Wholesale172 177 (3)%
Total service revenues1,027 1,019 %
Equipment revenues1 (12)%
Total operating revenues1,028 1,020 %
Cost of services (excluding Depreciation, amortization and accretion reported below)423 418 %
Cost of equipment and products (26)%
Selling, general and administrative326 313 %
Depreciation, amortization and accretion245 215 14 %
Loss on impairment of goodwill547 — N/M
(Gain) loss on asset disposals, net10 31 %
Total operating expenses1,551 954 63 %
Operating income (loss)$(523)$66 N/M
Net income (loss)$(483)$53 N/M
Adjusted OIBDA (Non-GAAP)1
$279 $288 (3)%
Adjusted EBITDA (Non-GAAP)1
$285 $291 (2)%
Capital expenditures2
$577 $556 %
Numbers may not foot due to rounding.
N/M - Percentage change not meaningful.
1    Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
2    Refer to Liquidity and Capital Resources within this MD&A for additional information on Capital expenditures.
43

Operating Revenues
(Dollars in millions)
3286



Residential revenues consist of:
Broadband services
Video services, including IPTV, traditional cable programming and satellite offerings
Voice services
Commercial revenues consist of:
High-speed and dedicated business internet services
Video services
Voice services
Wholesale revenues consist of:
Network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom's networks
Federal and state regulatory support, including ACAM
Key components of changes in the statement of operations items were as follows:
Total operating revenues
Residential revenues increased for 2023 due primarily to price increases and growth in broadband connections, partially offset by promotional activity and a decline in voice and video connections.

Commercial revenues decreased for 2023 due primarily to declining connections in CLEC markets.

Cost of services
Cost of services increased for 2023 due primarily to higher video programming costs, information processing costs, and employee-related expenses, partially offset by a decrease in cost to provide legacy services.

Selling, general and administrative
Selling, general and administrative expenses increased for 2023 due primarily to increases to support current and future growth, including employee-related expenses, information processing, and advertising and marketing expenses.

Depreciation, amortization and accretion
Depreciation, amortization and accretion increased for 2023 due primarily to increased capital expenditures on new fiber assets and customer premise equipment.
Loss on impairment of goodwill
During the fourth quarter of 2023, TDS Telecom recorded a $547 million loss on impairment of Goodwill. See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for additional information.
44

Liquidity and Capital Resources
Sources of Liquidity
TDS and its subsidiaries operate capital-intensive businesses. TDS incurred negative free cash flow in the year ended December 31, 2023, has incurred negative free cash flow in prior periods, and expects to continue to incur negative free cash flow in future periods. In the past, TDS’ existing cash and investment balances, funds available under its financing agreements, preferred share offerings, and cash flows from operating and certain investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for TDS to meet its day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets, pay dividends and to fund acquisitions. There is no assurance that this will be the case in the future.
TDS believes that existing cash and investment balances, funds available under its financing agreements, its ability to obtain future external financing, potential dispositions and expected cash flows from operating and investing activities will provide sufficient liquidity for TDS to meet its day-to-day operating needs and debt service requirements. In addition, TDS retains the ability, as described below, to reduce its capital and operating expenditures to ameliorate its funding needs.
TDS may require substantial additional funding for, among other uses, capital expenditures, making additional investments including new technologies, fiber deployments and E-ACAM builds, acquisitions of providers of telecommunications services, wireless spectrum license acquisitions, agreements to purchase goods or services, leases, repurchases of shares, or payment of dividends. It may be necessary from time to time to increase the size of its existing credit facilities, to amend existing or put in place new credit agreements, to obtain other forms of financing, issue equity securities, or to divest assets in order to fund potential expenditures. TDS' liquidity would be adversely affected if it is unable to obtain short or long-term financing on acceptable terms.
TDS will continue to monitor the rapidly changing business and market conditions and is taking and intends to take appropriate actions, as necessary, to meet its liquidity needs, including reducing its planned capital expenditures. Specifically, TDS Telecom has elected to slow the pace of its fiber deployment and reduce or defer planned capital expenditures as a means to lower its funding needs. It is possible that TDS Telecom will be required, if it is unable to access capital on acceptable terms, to substantially reduce its plans for fiber deployment, in both the short and long-term.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market investments. The primary objective of TDS’ Cash and cash equivalents investment activities is to preserve principal. TDS does not have direct access to UScellular cash.
Cash and Cash Equivalents
(Dollars in millions)
2338




The majority of TDS’ Cash and cash equivalents are held in bank deposit accounts and in money market funds that purchase only debt issued by the U.S. Treasury or U.S. government agencies. Refer to the Consolidated Cash Flow Analysis for additional information related to changes in Cash and cash equivalents.

45

In addition to Cash and cash equivalents, TDS and UScellular had available undrawn borrowing capacity (taking into account debt covenant restrictions) from the following debt facilities at December 31, 2023. See the Financing section below for further details.
TDSUScellular
(Dollars in millions)
Revolving Credit Agreement$299 $300 
Receivables Securitization Agreement— 300 
Repurchase Agreement1
— 200 
Total undrawn borrowing capacity299 800 
Debt covenant restrictions1
— 200 
Total available undrawn borrowing capacity$299 $600 
1The capacity available under the Repurchase Agreement and the Debt covenant restrictions in the table above relate to the Repurchase Agreement facility that subsequently expired in January 2024.
Financing
Revolving Credit Agreements
TDS and UScellular have unsecured revolving credit agreements with maximum borrowing capacities of $400 million and $300 million, respectively. Amounts under the revolving credit agreements may be borrowed, repaid and reborrowed from time to time until maturity in July 2026. As of December 31, 2023, the outstanding borrowings under the TDS agreement were $100 million and TDS' and UScellular’s unused borrowing capacity was $299 million and $300 million, respectively.
In January 2024, TDS borrowed $25 million under its revolving credit agreement.
Term Loan Agreements
TDS and UScellular have term loan agreements with maximum borrowing capacities of $500 million and $800 million, respectively. The maturity dates for the term loan agreements range from July 2026 to July 2031. As of December 31, 2023, TDS and UScellular have borrowed the full amounts available under the agreements and the outstanding borrowings were $492 million and $783 million, respectively.
Secured Term Loan Agreement
In September 2023, TDS entered into a $300 million senior secured term loan credit agreement. The maturity date of the agreement is the earlier of (i) September 2026 and (ii) the date that is 91 days prior to the scheduled maturity date of TDS' existing revolving credit agreement (which maturity date is currently July 2026). During 2023, TDS borrowed the full amount of $300 million available under the agreement.
This term loan is secured by a perfected security interest in certain assets of TDS, including 26 million common shares in UScellular, TDS' equity interest in certain wholly-owned subsidiaries, and all or substantially all of TDS' personal property that does not constitute equity interests. This term loan is also secured by a perfected security interest in certain assets of certain wholly-owned subsidiaries of TDS that are also guarantors, including without limitation and subject to customary exceptions, equity interests in certain wholly-owned subsidiaries of such subsidiaries and all or substantially all of the personal property of such guarantor subsidiaries that does not consist of equity interests. This agreement includes representations and warranties, covenants, events of default and other terms and conditions that are substantially similar to TDS' existing term loan and revolving credit agreements or otherwise customary for similar secured credit facilities.
Export Credit Financing Agreements
TDS has a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan facility agreement. During 2023, TDS borrowed $100 million under the agreement. The maturity date for the agreement is December 2027. As of December 31, 2023, the outstanding borrowings under the agreement were $150 million, which is the full amount available under the agreement.
UScellular has a $150 million term loan credit facility with Export Development Canada to finance (or refinance) imported equipment, including equipment purchased prior to entering the term loan facility agreement. The maturity date for the agreement is January 2027. As of December 31, 2023, UScellular has borrowed the full amount available under the agreement.

46

Receivables Securitization Agreement
UScellular, through its subsidiaries, has a receivables securitization agreement that permits securitized borrowings using its equipment installment plan receivables. In September 2023, UScellular amended the agreement to extend the maturity date to September 2025. Amounts under the agreement may be borrowed, repaid and reborrowed from time to time until maturity. Unless the agreement is amended to extend the maturity date, repayments based on receivable collections commence in October 2025. During 2023, UScellular borrowed $315 million and repaid $440 million under the agreement. As of December 31, 2023, the outstanding borrowings under the agreement were $150 million and the unused borrowing capacity was $300 million, subject to sufficient collateral to satisfy the asset borrowing base provisions of the agreement.
In January 2024, UScellular repaid $50 million under the agreement.
Repurchase Agreement
UScellular, through a subsidiary (the repo subsidiary), had a repurchase agreement to borrow up to $200 million, subject to the availability of eligible equipment installment plan receivables and the agreement of the lender. In January 2023, UScellular amended the repurchase agreement to extend the expiration date to January 2024. During 2023, the repo subsidiary repaid $60 million under the repurchase agreement. As of December 31, 2023, there were no outstanding borrowings under the repurchase agreement and the unused borrowing capacity was $200 million, which was restricted from being borrowed due to covenants within the TDS and UScellular credit agreements that limit secured borrowings on an enterprise-wide basis.
The UScellular repurchase agreement expired in January 2024.
Debt Covenants
The TDS and UScellular revolving credit agreements, term loan agreements including the secured term loan, export credit financing agreements and the UScellular receivables securitization agreement require TDS or UScellular, as applicable, to comply with certain affirmative and negative covenants, which include certain financial covenants that may restrict the borrowing capacity available. In March 2023, the agreements were amended to require TDS and UScellular to maintain the Consolidated Leverage Ratio as of the end of any fiscal quarter at a level not to exceed the following: 4.25 to 1.00 from January 1, 2023 through March 31, 2024; 4.00 to 1.00 from April 1, 2024 through March 31, 2025; 3.75 to 1.00 from April 1, 2025 and thereafter. TDS and UScellular are also required to maintain the Consolidated Interest Coverage Ratio at a level not lower than 3.00 to 1.00 as of the end of any fiscal quarter. TDS and UScellular believe that they were in compliance as of December 31, 2023 with all such financial covenants. 
TDS believes that it and/or its subsidiaries were in compliance as of December 31, 2023, with all covenants and other requirements set forth in the TDS and UScellular long-term debt indentures. TDS and UScellular have not failed to make nor do they expect to fail to make any scheduled payment of principal or interest under such indentures.
Other Long-Term Financing
TDS and UScellular each have an effective shelf registration statement on Form S-3 to issue senior or subordinated debt securities, preferred shares and depositary shares. The proceeds from any such issuances may be used for general corporate purposes, including the possible reduction of other short-term or long-term debt; spectrum purchases; capital expenditures; acquisition, construction and development programs; working capital; additional investments in subsidiaries; or the repurchase of shares. The ability of TDS or UScellular to complete an offering pursuant to such shelf registration statements is subject to market conditions and other factors at the time.
TDS and UScellular, at their discretion, may from time to time seek to retire or purchase their outstanding debt through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Refer to Market Risk — Long-Term Debt for additional information regarding required principal payments and the weighted average interest rates related to TDS’ Long-term debt.
See Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information related to the financing agreements.
Credit Ratings
In certain circumstances, TDS’ and UScellular’s interest cost on their various agreements may be subject to increase if their current credit ratings from nationally recognized credit rating agencies are lowered, and may be subject to decrease if the ratings are raised. The agreements do not cease to be available nor do the maturity dates accelerate solely as a result of a downgrade in TDS’ or UScellular’s credit rating. However, downgrades in TDS’ or UScellular’s credit rating could adversely affect their ability to renew the agreements, obtain consents, waivers, or amendments, or obtain access to other credit agreements in the future.
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TDS and UScellular are rated as sub-investment grade issuers. The TDS and UScellular issuer credit ratings as of December 31, 2023, and the dates such ratings were re-affirmed were as follows:
Rating AgencyRatingOutlook
Moody's (re-affirmed October 2023)Ba1stable outlook
Standard & Poor's (issued August 2023)BBwatch-developing outlook
Fitch Ratings (re-affirmed March 2023)BB+stable outlook
Following the announcement on August 4, 2023 related to the review of strategic alternatives for UScellular, Standard & Poor's placed the BB issuer credit rating for TDS on CreditWatch with developing implications. Per the release, this action reflects the potential for a higher or lower rating depending on the outcome of the UScellular strategic alternatives review. Further, Standard & Poor's indicated they expect to resolve the CreditWatch placement once they have sufficient information following the conclusion of the strategic review process. At the same time, Moody's issued a release indicating that TDS' Ba1 issuer credit rating is not immediately impacted given the uncertainty around potential outcomes. Fitch Ratings did not issue a public statement.
Capital Requirements
The discussion below is intended to highlight some of the significant cash outlays expected during 2024 and beyond and to highlight the spending incurred in current and prior years for these items. This discussion does not include cash required to fund normal operations, and is not a comprehensive list of capital requirements. Significant cash requirements that are not routine or in the normal course of business could arise from time to time.
Capital Expenditures
TDS makes substantial investments to acquire, construct and upgrade telecommunications networks and facilities to remain competitive and as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities (such as 5G and VoLTE technology for UScellular and fiber for TDS Telecom) have required substantial investments in potentially revenue-enhancing and cost-saving upgrades to TDS’ networks to remain competitive; this is expected to continue in 2024 and future years with the continued deployment of 5G technology for UScellular, and the continued deployment of fiber for TDS Telecom.
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Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, in 2023 and 2022, were as follows:

Capital Expenditures
(Dollars in millions)
12311



UScellular’s capital expenditures in 2023 were $611 million compared to $717 million in 2022. In 2023, UScellular's capital expenditures were used for the following purposes:

Enhance and maintain UScellular's network capacity and coverage, including continued deployment of 5G with a focus on mid-band spectrum to provide additional speed and capacity to accommodate increased data usage by current customers; and
Invest in information technology to support existing and new services and products.

Capital expenditures for 2024 are expected to be between $550 million and $650 million. These expenditures are expected to be used for similar purposes as those listed above.
TDS Telecom’s capital expenditures in 2023 were $577 million compared to $556 million in 2022. In 2023, these capital expenditures were used for the following purposes:
Continue to expand fiber deployment in expansion and incumbent markets;
Support broadband growth and success-based spending; and
Maintain and enhance existing infrastructure including build-out requirements of state broadband and ACAM programs.

Capital expenditures for 2024 are expected to be between $310 million and $340 million. These expenditures are expected to be used for similar purposes as those listed above.
TDS intends to finance its capital expenditures for 2024 using primarily Cash flows from operating activities, existing cash balances and additional debt financing from its existing agreements and/or other forms of available financing. 
Acquisitions, Divestitures and Exchanges
TDS may be engaged in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties, assets, wireless spectrum licenses (including pursuant to FCC auctions) and other possible businesses. In general, TDS may not disclose such transactions until there is a definitive agreement.
Other Obligations
TDS will require capital for future spending on existing contractual obligations, including long-term debt obligations; dividend obligations; lease commitments; commitments for device purchases, network facilities and transport services; agreements for software licensing; long-term marketing programs; commitments for wireless spectrum licenses acquired through FCC auctions; and other agreements to purchase goods or services. TDS has taken and expects to continue to take steps to reduce and defer capital expenditures to lower its funding needs. Refer to Liquidity and Capital Resources within this MD&A for additional information.
Variable Interest Entities
TDS consolidates certain “variable interest entities” as defined under GAAP. See Note 15 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. TDS may elect to make additional capital contributions and/or advances to these variable interest entities in future periods to fund their operations. 
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Common Share Repurchase Programs
During 2023, TDS repurchased 545,990 Common Shares for $6 million at an average cost per share of $10.09. As of December 31, 2023, the maximum dollar value of TDS Common Shares that may yet be purchased under TDS' program was $132 million.
UScellular had no share repurchases during 2023. At December 31, 2023, the total cumulative amount of UScellular Common Shares authorized to be repurchased is 1,927,000.
Depending on its future financial performance, construction, development and acquisition programs, and available sources of financing, TDS and UScellular may not have sufficient liquidity or capital resources to make share repurchases. Therefore, there is no assurance that TDS and UScellular will make any share repurchases in the future. 
For additional information related to the current TDS and UScellular repurchase authorizations, see Note 17 — Shareholders’ Equity in the Notes to Consolidated Financial Statements.
Dividends
TDS paid quarterly dividends per outstanding Common Share of $0.185 in 2023 and $0.180 in 2022. TDS increased the dividend per share to $0.190 in the first quarter of 2024. It is uncertain at this time how the strategic alternatives review for UScellular, TDS' available opportunities to reinvest in its businesses, or TDS' ongoing liquidity needs, may impact the decisions of the TDS Board of Directors regarding the declaration of future dividends.
TDS paid quarterly dividends per outstanding Series UU depositary share (each representing 1/1,000th of a Preferred Share) of $0.414 in 2023 and 2022.
TDS paid quarterly dividends per outstanding Series VV depositary share (each representing 1/1,000th of a Preferred Share) of $0.375 in 2023 and 2022.
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Consolidated Cash Flow Analysis
TDS operates a capital-intensive business. TDS makes substantial investments to acquire wireless spectrum licenses and properties and to construct and upgrade communications networks and facilities with a goal of creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue‑enhancing and cost-saving upgrades to TDS’ networks. Revenues from certain of these investments are long-term and in some cases are uncertain. To meet its cash-flow needs, TDS may need to delay or reduce certain investments, dividend payments or sell assets. Refer to Liquidity and Capital Resources within this MD&A for additional information. Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, timing and other factors. The following discussion summarizes TDS’ cash flow activities in 2023 and 2022.
2023 Commentary
TDS’ Cash, cash equivalents and restricted cash decreased $129 million. Net cash provided by operating activities was $1,142 million due to a net loss of $487 million adjusted for non-cash items of $1,496 million and distributions received from unconsolidated entities of $150 million, including $69 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $17 million. The working capital changes were primarily driven by the timing of vendor payments and an increase in receivables, partially offset by reduced inventory balances and a federal income tax refund of $57 million received during the second quarter of 2023.
Cash flows used for investing activities were $1,327 million, which included payments for property, plant and equipment of $1,211 million and payments for wireless spectrum licenses of $130 million.
Cash flows provided by financing activities were $56 million, due primarily to $365 million borrowed under the TDS revolving credit agreement, $315 million borrowed under the UScellular receivables securitization agreement, $300 million borrowed under the TDS secured term loan agreement, and $100 million borrowed under the TDS export credit agreement. These were partially offset by $440 million in repayments on the UScellular receivables securitization agreement, $265 million in repayments on the TDS revolving credit agreement, a $60 million repayment on the UScellular EIP receivables repurchase agreement, payment of $153 million in dividends and cash paid for software license agreements of $66 million.
2022 Commentary
TDS’ Cash, cash equivalents and restricted cash decreased $15 million. Net cash provided by operating activities was $1,155 million due to net income of $72 million adjusted for non-cash items of $1,036 million and distributions received from unconsolidated entities of $145 million, including $59 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased net cash by $98 million. The working capital changes were primarily influenced by an increase in receivable and inventory balances, partially offset by a federal income tax refund of $125 million received during the first quarter of 2022. The increase in receivables was driven by a high volume of equipment upgrades due to promotional activities and a longer contract term for equipment installment plans.
Cash flows used for investing activities were $1,783 million, which included payments for property, plant and equipment of $1,161 million and payments for wireless spectrum licenses of $585 million. Cash payments for property, plant and equipment are lower than the total capital expenditures in 2022 due primarily to future obligations of certain software license agreements that are recorded as current year capital expenditures but are paid over time.
Cash flows provided by financing activities were $613 million, due primarily to $800 million borrowed under the term loan facilities, $200 million borrowed under the export credit financing agreements, $110 million borrowed under the UScellular EIP receivables repurchase agreement, $75 million borrowed under the UScellular revolving credit agreement, and $75 million borrowed under the UScellular receivables securitization agreement. These were partially offset by $250 million of repayments on the UScellular receivables securitization agreement, a $75 million repayment on the UScellular revolving credit agreement, a $50 million repayment on the UScellular EIP receivables repurchase agreement, the payment of dividends totaling $151 million, the repurchase of TDS and UScellular Common Shares totaling $83 million and cash paid for software license agreements of $23 million.
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Consolidated Balance Sheet Analysis
The following discussion addresses certain captions in the consolidated balance sheet and changes therein. This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes. Notable balance sheet changes during 2023 were as follows:
Accounts receivable, other
Accounts receivable, other decreased $30 million due primarily to the collection of vendor credits from original equipment manufacturers.
Inventory, net
Inventory, net decreased $60 million due primarily to efforts to reduce inventory on hand which was elevated due to lower than expected sales in the fourth quarter of 2022.
Income taxes receivable
Income taxes receivable decreased $55 million due primarily to a federal income tax refund received in the second quarter of 2023 related to the 2020 net operating loss carryback enabled by the CARES Act.
Goodwill
Goodwill decreased $547 million due to the impairment of TDS Telecom's Goodwill in the fourth quarter of 2023. See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for additional information.
Accounts payable
Accounts payable decreased $146 million due primarily to the timing of vendor invoice payments related to inventory.
Other current liabilities
Other current liabilities decreased $186 million due primarily to the payment of Auction 107 relocation fees and repayments on the EIP receivables repurchase agreement.
Retained earnings
Retained earnings decreased $676 million due primarily to the net loss incurred for the period, driven by the impairment of TDS Telecom's Goodwill of $547 million and the payment of dividends.
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Application of Critical Accounting Policies and Estimates
TDS prepares its consolidated financial statements in accordance with GAAP. TDS’ significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies, Note 2 — Revenue Recognition and Note 10 — Leases in the Notes to Consolidated Financial Statements.
Management believes the application of the following critical accounting policies and the estimates required by such application reflect its most significant judgments and estimates used in the preparation of TDS’ consolidated financial statements.
Intangible Asset Impairment
Wireless spectrum licenses and Goodwill represent a significant component of TDS’ consolidated assets. These assets are considered to be indefinite-lived assets, and therefore are not amortized but are tested at least annually for impairment. TDS performs annual impairment testing of wireless spectrum licenses and Goodwill as of November 1 of each year, or more frequently if triggering events occur. Significant negative events, such as changes in any of the assumptions described below or decreases in forecasted cash flows, could result in an impairment. Wireless spectrum licenses are tested for impairment at the level of reporting referred to as a unit of accounting. Goodwill is tested for impairment at the level of reporting referred to as a reporting unit.
See Note 7 — Intangible Assets in the Notes to Consolidated Financial Statements for information related to Licenses and Goodwill activity in 2023 and 2022.
Wireless Spectrum Licenses – UScellular
For purposes of its impairment test, UScellular has one unit of accounting. UScellular performed a quantitative impairment assessment in 2023 and a qualitative impairment assessment in 2022.
In 2023, a market approach was used to value the wireless spectrum license portfolio. The wireless spectrum licenses were pooled by band, and a range of values was established using industry benchmarks, FCC auction data, and precedent transactions. The midpoint of the range was established as the point estimate for the value of each band, and the sum of the band values was used as the point estimate value of UScellular's wireless spectrum license unit of accounting. Based on this valuation, the fair value of the wireless spectrum licenses exceeded the respective carrying value by 17% and there was no impairment of wireless spectrum licenses.
In 2022, UScellular considered several qualitative factors, including analyst estimates of wireless spectrum license values, recent spectrum auction results, UScellular and other market participant transactions, and other industry and market factors. Based on these assessments, UScellular concluded that it was more likely than not that the fair value of the unit of accounting exceeded its carrying value. Therefore, no quantitative impairment evaluation was completed.
Goodwill – TDS Telecom
TDS Telecom had recorded Goodwill as a result of past business acquisitions. For purposes of the 2023 and 2022 Goodwill impairment test, TDS Telecom had one reporting unit.
2023 Impairment Test
Rising interest rates and liquidity constraints have caused TDS Telecom to slow the pace of its fiber deployment and reduce or defer planned capital expenditures in future years, which also defers the related revenue generation from these projects. In addition, TDS Telecom is facing increasing competitive pressures in its Incumbent Wireline markets. Consequently, TDS Telecom reset its long-range forecast in the fourth quarter of 2023, and performed a quantitative impairment assessment as of November 1, 2023.
The discounted cash flow and guideline public company approaches were used to value the reporting unit, weighted at 75% and 25%, respectively. The discounted cash flow approach develops an indication of fair value using various inputs and considers current economic factors as well as risks specific to the industry and the reporting unit. The most significant assumptions made in this process were the revenue growth rate over the forecast period (shown as a compound annual growth rate in the table below), the terminal growth rate and the discount rate.
Key Assumptions
Revenue growth rate6.8 %
Terminal growth rate1.0 %
Discount rate1
11.0 %
1The discount rate is derived based on a set of guideline public companies and is an indicator of the cost of capital for a market participant in TDS Telecom's industry. The discount rate includes a premium for forecast risk; the premium in 2023 contemplates execution risk related to fiber expansion given near-term capital and liquidity constraints at the reporting unit.
The guideline public company method develops an estimate of fair value by calculating market pricing multiples for selected publicly traded companies that are comparable to the reporting unit. The multiples are applied to the appropriate financial measure of the reporting unit to estimate the reporting unit's fair value.
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The results of the goodwill impairment test indicated that the carrying value of the TDS Telecom reporting unit exceeded its fair value. Therefore, TDS recognized a loss on impairment of goodwill of $547 million to reduce the carrying value of Goodwill for the reporting unit to zero in the fourth quarter of 2023.
This reset of the long-range forecast and resulting impairment of Goodwill did not have a material impact on the value of TDS Telecom’s long-lived asset group; therefore, TDS concluded that it was more likely than not that the fair value of the long-lived asset group exceeded its carrying value, and accordingly no impairment of long-lived assets was recorded.
2022 Impairment Test
TDS Telecom performed a qualitative impairment assessment in 2022, which analyzed company, industry and economic trends, and concluded that it was more likely than not that the fair value of the TDS Telecom reporting unit exceeded its carrying value, and accordingly no Goodwill impairment was recorded in 2022.
Income Taxes
The amounts of income tax assets and liabilities, the related income tax provision and the amount of unrecognized tax benefits are critical accounting estimates because such amounts are significant to TDS’ financial condition and results of operations.
The preparation of the consolidated financial statements requires TDS to calculate a provision for income taxes. This process involves estimating the actual current income tax liability together with assessing temporary differences resulting from the different treatment of items for tax purposes. These temporary differences result in deferred income tax assets and liabilities which are included on a net basis in TDS’ Consolidated Balance Sheet. TDS must then assess the likelihood that deferred income tax assets will be realized based on future taxable income and, to the extent management believes that realization is not likely, establish a valuation allowance. Management’s judgment is required in determining the provision for income taxes, deferred income tax assets and liabilities and any valuation allowance that is established for deferred income tax assets.
TDS recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on management’s judgment as to the possible outcome that has a greater than 50% cumulative likelihood of being realized upon ultimate resolution.
See Note 5 — Income Taxes in the Notes to Consolidated Financial Statements for additional information.
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Regulatory Matters
5G Fund
On October 27, 2020, the FCC adopted rules creating the 5G Fund for Rural America, which will distribute up to $9 billion over ten years to bring 5G wireless broadband connectivity to rural America. The 5G Fund will be implemented through a two-phase competitive process, using multiround auctions to award support. The winning bidders will be required to meet certain minimum speed requirements and interim and final deployment milestones. The order provides that the 5G Fund be in lieu of the previously proposed fund (the Phase II Connect America Mobility Fund) for the development of 4G LTE. The order also provides that over time a growing percentage of the legacy support a carrier receives must be used for 5G deployment. On September 22, 2023, the FCC adopted a Further Notice of Proposed Rulemaking (FNPRM) to continue implementation of the 5G Fund. The FCC sought comment on, among other things, the definition of areas eligible for 5G Fund support, adjustment factors and metrics used to identify winning bids, and the potential inclusion of cybersecurity and supply chain management requirements for those receiving 5G Fund support.
UScellular cannot predict at this time when the 5G Fund auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the 5G Fund auction will provide opportunities to UScellular to offset any loss in existing support.
Spectrum Auctions
On March 2, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.5 GHz band (Auction 105). On September 2, 2020, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 243 wireless spectrum licenses for a purchase price of $14 million. On July 15, 2022, the FCC released a Consent Decree related to its spectrum aggregation and ownership attribution rules in which UScellular agreed to relinquish its rights to 27 wireless spectrum licenses awarded in Auction 105 and subsequently received a full refund of $2 million. The remaining 216 wireless spectrum licenses were granted by the FCC on July 26, 2022.
On August 7, 2020, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.7-3.98 GHz bands (Auction 107). On February 24, 2021, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 254 wireless spectrum licenses for $1,283 million. UScellular paid $30 million of this amount in 2020 and the remainder in March 2021. The wireless spectrum licenses from Auction 107 were granted by the FCC in July 2021. Additionally, UScellular was obligated to pay approximately $179 million in total from 2021 through 2025 related to relocation costs and accelerated relocation incentive payments. Such additional costs were accrued and capitalized at the time the licenses were granted, and are adjusted as necessary as the estimated obligation changes. UScellular paid $122 million, $8 million and $36 million related to the additional costs for the years ended December 31, 2023, 2022 and 2021, respectively. UScellular received full access to the spectrum in the third quarter of 2023.
On June 9, 2021, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 3.45-3.55 GHz band (Auction 110). On January 14, 2022, the FCC announced by way of public notice that UScellular was the provisional winning bidder for 380 wireless spectrum licenses for $580 million. UScellular paid $20 million of this amount in 2021 and the remainder in the first quarter of 2022. The wireless spectrum licenses from Auction 110 were granted by the FCC on May 4, 2022.
On March 21, 2022, the FCC released a Public Notice establishing procedures for an auction offering wireless spectrum licenses in the 2.5 GHz band (Auction 108). On September 1, 2022, the FCC announced by way