TDS Telecom is starting to see “some competitive threats starting to nip away" at its legacy markets, according to CFO Michelle Brukwicki, including new fixed wireless and satellite options.
At the Raymond James 2023 TMT and Consumer Conference, Brukwicki said more options are becoming available in markets where TDS is the incumbent local exchange carrier (ILEC) providing DSL, especially in rural areas.
The good news is TDS has “seen this coming.”
“We’ve actually been investing in our ILEC markets for well over a decade in terms of getting ourselves upgraded to fiber and overbuilding ourselves,” she added.
About half of TDS’ service addresses across the country are still in its ILEC markets. As of the end of third quarter, the provider had 40% of addresses “fibered up” in that ILEC footprint, and the goal is to reach at least 50% by 2026.
Brukwicki said TDS’ decision to accept an additional $90 million per year in Enhanced A-CAM support from the Federal Communications Commission (FCC) will help advance that goal.
TDS is "trying to defend its ILEC footprint by doing upgrades and getting fiber as far as we can where it makes economic sense,” she added.
The operator has been implementing its fiber program for several years now, which includes investments in its incumbent markets and new expansion markets. The program has experienced significant scaling up, with 2023 being a particularly successful year marked by robust momentum in fiber expansion.
Originally targeting 175,000 addresses this year, TDS has exceeded expectations, allowing for an upward revision of guidance to 200,000 addresses by the third quarter.
Most of its new market expansion has been tier two and tier three cities — smaller urban, suburban and rural communities.
TDS has spent time doing diligence and work in new market selection to choose cities that are growing, Brukwicki said, adding, “the idea is you get yourself established, that becomes the base of a cluster and then as those communities grow, you grow with it.”
The company enters these new markets with the understanding that often, there will be competition with an existing cable provider and/or another ILEC.
“But we're going to places where the LEC has not upgraded itself to fiber. So the market dynamics are that you got a cable provider and ILEC providing DSL service,” she said. “As we come in as the fiber over builder, it's providing a nice choice for the people in those communities.”
TDS expects to get to about a 40% broadband penetration once its reached a steady state in each market (about year four or five, according to Brukwicki), and its early markets are “proving that out.”
The provider expects to spend about $550 million this year, a figure similar to what it spent last year. But next year it will scale that number down to “pace our spending with our financing capability,” Brukwicki noted, “and we want to try to self-fund as much as we possibly can.”
That said, the number of service addresses TDS plans to build out in 2024 will be closer to its 2022 levels in the 130,000 range.
With about 100 new markets planned for initial launch by the end of this year, a lot of the upfront costs will be behind TDS heading into 2024. Brukwicki expects that capital spending will be “meaningfully lower next year compared to the last couple years, which have been really, really big.”