Telephone and Data Systems, Inc.

Company Overview

Business Model: Telephone and Data Systems, Inc. (TDS) is a diversified telecommunications company providing high-quality communications services. Through its wholly-owned subsidiary, TDS Telecommunications LLC (TDS Telecom), it offers broadband, video, voice, and wireless connections. Its majority-owned subsidiary, Array Digital Infrastructure, Inc. (Array), leases tower space to tenants, provides ancillary services, holds noncontrolling interests in primarily wireless operating companies, and holds wireless spectrum licenses. All of Telephone and Data Systems, Inc.'s segments operate entirely in the United States.

Market Position: TDS Telecom serves 1.1 million connections across 30 states, operating in a mix of small to mid-sized urban, suburban, and rural communities. It aims to be the preferred broadband provider by offering fiber-rich networks. Array is the fifth largest tower owner and operator of shared wireless communications infrastructure in the United States, owning 4,450 towers in 19 states. Array's portfolio has a lower tenancy rate than other tower operators, providing ample capacity for additional tenants. Its largest tenants include T-Mobile, AT&T, and Verizon.

Recent Strategic Developments:

• Array Divestiture: On August 1, 2025, Array sold its wireless operations and select spectrum assets to T-Mobile US, Inc. for total consideration of $4,293.8 million, comprising $2,628.8 million in cash proceeds and $1,665.0 million in debt assumed by T-Mobile US, Inc. These operations are presented as discontinued operations.
• Array Master License Agreement (MLA) with T-Mobile US, Inc.: Concurrently with the divestiture, Array and T-Mobile US, Inc. entered into an MLA, under which T-Mobile US, Inc. agreed to license space on a minimum of 2,015 Array-owned towers for at least 15 years and extended existing leases for approximately 600 towers for a new 15-year term. T-Mobile US, Inc. also leases approximately 1,800 towers on an interim basis for up to 30 months.
• Array Spectrum Sales: Array entered into agreements to sell wireless spectrum licenses:
  • October 17, 2024: Agreement with Verizon Communications Inc. for AWS, Cellular, and PCS licenses for $1,000.0 million, expected to close in Q2/Q3 2026.
  • November 6, 2024: Agreement with New Cingular Wireless PCS, LLC (AT&T) for 3.45 GHz and 700 MHz licenses for $1,018.0 million, which closed on January 13, 2026.
  • August 29, 2025: Agreement with T-Mobile US, Inc. for 700 MHz licenses for $85.0 million, expected to close in 2026.
  • October 7, 2025: Agreement with T-Mobile US, Inc. for 600 MHz licenses for $86.4 million (following T-Mobile US, Inc.'s exercise of a call option), expected to close in 2026.
• TDS Telecom Fiber Investment: TDS Telecom continued to invest in fiber deployment in 2025, expanding its footprint in Wisconsin and the Pacific Northwest to offer broadband speeds up to 8 Gigabits per second (Gbps) for residential and 10 Gbps for select business connections.
• TDS Telecom Divestitures: In 2025, TDS Telecom sold incumbent markets in Colorado for $18.5 million (realizing a book gain of $6.8 million) and incumbent markets in Oklahoma for $43.4 million (realizing a book gain of $18.1 million).
• Array Acquisition: On July 14, 2025, Array completed the acquisition of the remaining interest of King Street Wireless, LLC and Sunshine Spectrum, LLC for $16.7 million.

Geographic Footprint: Telephone and Data Systems, Inc. operates entirely within the United States. TDS Telecom provides services in 30 states, while Array owns towers in 19 states, primarily concentrated in New England, the Mid-Atlantic, the Midwest and Great Plains, and the Pacific Northwest.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 59.0% (2025)
• Operating Margin: -7.9% (2025)
• Net Margin: -0.5% (2025)

Investment in Growth:

• Capital Expenditures: $436.6 million (2025)
• Strategic Investments: Array acquired the remaining interest of King Street Wireless, LLC and Sunshine Spectrum, LLC for $16.7 million in 2025. TDS Telecom continues significant capital investment in fiber deployment and E-ACAM builds.

Business Segment Analysis

TDS Telecommunications LLC

Financial Performance:

• Revenue: $1,038.4 million (-2.1% YoY)
• Operating Income: $19.7 million (-81.3% YoY)
• Adjusted EBITDA: $330.3 million (-5.7% YoY)
• Capital Expenditures: $406.4 million (+25.5% YoY)
• Expected 2026 Capital Expenditures: $550 million - $600 million

Key Growth Drivers:

• Residential broadband connections increased by 2% to 561,900 in 2025.
• Expansion Fiber connections grew by 27% to 160,600 in 2025, with 15,100 residential fiber net adds.
• Price increases contributed to a 1% increase in total residential revenue per connection in 2025.
• 78% of the total footprint offers 1Gig+ service as of December 31, 2025, up from 74% a year prior.

Product Portfolio:

• Residential: High-speed broadband (fiber up to 8 Gbps, DOCSIS 3.1 up to 1 Gbps), video (TDS TV+, satellite TV partnerships), voice (local, long-distance, VoIP), and wireless (MVNO-based By-the-Gig and Unlimited data plans).
• Commercial: Broadband, IP-based services, and hosted voice and video collaboration services for small- and medium-sized businesses.
• Wholesale: Network access services for interexchange and wireless carriers, and federal/state regulatory support (including E-ACAM).

Market Dynamics:

• Faces intense competition from various providers including wireline, cable, fiber overbuilders, VoIP, satellite, and wireless.
• Video and voice connections are experiencing industry-wide declines due to cord-cutting and alternative technologies.
• Service addresses increased 4% to 1.9 million as of December 31, 2025, with 48% of incumbent service addresses now served by fiber.

Array Digital Infrastructure, Inc.

Financial Performance:

• Revenue: $163.0 million (+58.3% YoY)
• Operating Loss: $(92.5) million (reduced loss by 64.5% YoY)
• Adjusted EBITDA: $194.3 million (+59.4% YoY)
• Capital Expenditures: $29.9 million (+56.5% YoY)
• Expected 2026 Capital Expenditures: $25.0 million - $35.0 million

Key Growth Drivers:

• Significant revenue growth driven by the T-Mobile US, Inc. MLA, which committed to a minimum of 2,015 new site leases and interim leases on approximately 1,800 towers.
• Services revenue increased due to the full insourcing of sales and leasing operations in early 2025 and fees from structural analysis related to the T-Mobile US, Inc. integration.
• Demand for tower infrastructure remains high, fueled by mobile data consumption, 5G deployment, and spectrum build-outs.
• Array's lower tenancy rate compared to peers and the fact that over one-third of its towers have no competing structure within a two-mile radius provide significant growth opportunities.

Product Portfolio:

• Leasing tower space to wireless network operators, internet service providers, government and public safety agencies, and broadcast/media companies.
• Ancillary services such as application and structural analysis fees.
• Holds noncontrolling interests in primarily wireless operating companies and wireless spectrum licenses (remaining book value of $1,584.8 million as of December 31, 2025, primarily C-Band spectrum).

Market Dynamics:

• Owns 4,450 towers in 19 states, with 4,572 colocations as of December 31, 2025, resulting in a tower tenancy rate of 1.03.
• Largest tenants include T-Mobile, AT&T, and Verizon, with long-term Master License Agreements.
• DISH Wireless has failed to make certain payments under its Master Lease Agreement, claiming its obligations are excused. Site rental revenues from DISH Wireless were $6.5 million in 2025.
• Array is evaluating 800-1,800 towers without tenants for increased leasing, ground rent rationalization, or potential divestiture/decommissioning.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases:
  • Telephone and Data Systems, Inc.: Repurchased 2,843,427 Common Shares for $108.1 million in 2025.
  • Array Digital Infrastructure, Inc.: Repurchased 328,835 Common Shares for $20.9 million in 2025.
• Dividend Payments:
  • Telephone and Data Systems, Inc.: Paid quarterly dividends of $0.04 per Common Share in 2025. Paid $0.414 per Series UU depositary share and $0.375 per Series VV depositary share in 2025.
  • Array Digital Infrastructure, Inc.: Declared a special dividend of $23.00 per Common and Series A outstanding share on August 1, 2025, and a special dividend of $10.25 per Common and Series A outstanding share on January 13, 2026 (paid February 2, 2026).
• Future Capital Return Commitments: Telephone and Data Systems, Inc. authorized an additional $500.0 million stock repurchase program on November 7, 2025, bringing the total remaining authorization to $523.9 million as of December 31, 2025. Array Digital Infrastructure, Inc. expects to declare a special dividend upon the closure of the Verizon Communications Inc. spectrum transaction and may declare regular cash dividends thereafter.

Balance Sheet Position (as of December 31, 2025):

• Cash and Equivalents: $765.9 million
• Total Debt: $828.7 million
• Net Cash Position: $(62.8) million (Net Debt)
• Credit Rating:
  • Moody's: Ba1 (stable outlook, issued August 2025)
  • Standard & Poor's: BBB- (stable outlook, issued August 2025)
  • Fitch Ratings: BB+ (stable outlook, issued September 2025)
• Debt Maturity Profile: Total long-term debt obligations of $843.6 million with a weighted-average interest rate of 5.9%. Key maturities include $158.8 million in 2027 and $292.8 million in 2030.

Cash Flow Generation:

• Operating Cash Flow (from continuing operations): $338.3 million (2025)
• Free Cash Flow (from continuing operations): $(54.2) million (2025)

Operational Excellence

Production & Service Model:

• TDS Telecommunications LLC: Operates a highly reliable IP-based broadband network integrating broadband, video, and voice services, leveraging a 400-gigabit core network. Utilizes centralized monitoring and 24/7 Network Management Centers for service reliability. Investing in IT modernization to enhance customer experience and operational efficiency.
• Array Digital Infrastructure, Inc.: Owns and operates 4,450 towers, consisting of monopole, self-support (lattice), and guyed structures. Towers are primarily on leased land, with 18% on deeded land or perpetual easements. Most towers have adequate capacity for additional tenants.

Supply Chain Architecture:

• Key Suppliers & Partners: TDS Telecommunications LLC relies on third parties for wireless service delivery (MVNO), network infrastructure, and content. Array Digital Infrastructure, Inc.'s largest tenants, T-Mobile, AT&T, and Verizon, are critical partners under long-term Master License Agreements. Telephone and Data Systems, Inc. also outsources certain support and billing functions to third-party vendors.

Facility Network:

• Manufacturing: Not applicable.
• Research & Development: Not explicitly detailed as separate facilities.
• Distribution: TDS Telecommunications LLC uses sales contact centers, direct sales forces (including third-party), retail stores, sales agents, and an online platform.

Operational Metrics:

• TDS Telecommunications LLC: Total connections decreased 4% to 1,079,500 in 2025. Residential broadband connections increased 2% to 561,900. Residential fiber churn rate was 1.2%, and total residential broadband churn rate was 1.6% in 2025.
• Array Digital Infrastructure, Inc.: Owned 4,450 towers and had 4,572 colocations as of December 31, 2025, resulting in a tower tenancy rate of 1.03.

Market Access & Customer Relationships

Go-to-Market Strategy:

• Distribution Channels: TDS Telecommunications LLC employs a hyper-localized and community-based sales and marketing effort, utilizing door-to-door selling, digital marketing, targeted mailings, mass advertising, sales contact centers, direct sales forces, retail stores, sales agents, and an online platform. Array Digital Infrastructure, Inc. has a dedicated sales team for carrier and non-carrier customers.

Customer Portfolio:

• Enterprise Customers: TDS Telecommunications LLC serves small- and medium-sized businesses. Array Digital Infrastructure, Inc. serves wireless network operators, internet service providers, government and public safety agencies, and broadcast/media companies.
• Strategic Partnerships: Array Digital Infrastructure, Inc. has long-term Master License Agreements with its largest customers, T-Mobile, AT&T, and Verizon.
• Customer Concentration: A substantial portion of Array Digital Infrastructure, Inc.'s revenues are derived from a small number of tenants concentrated in the wireless industry, particularly T-Mobile US, Inc.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics:

• Wireline Industry: Characterized by increasing competition due to broadband technology deployment, MVNO wireless offerings, and enhanced video services. Incumbent carriers are upgrading networks, and overbuilders are expanding with venture capital, private equity, and government funding.
• Tower Industry: Robust competition driven by high demand for tower infrastructure, primarily from mobile data consumption, 5G deployment, spectrum build-outs, and the emergence of next-generation technologies.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• TDS Telecommunications LLC: Competes with other wireline providers, cable providers, fiber overbuilders, VoIP providers, satellite providers, wireless providers, and emerging technology providers.
• Array Digital Infrastructure, Inc.: Competes with large tower operators (American Tower Corporation, Crown Castle Inc, SBA Communications Corporation), regional tower operators, build-to-suit providers, and owners of non-tower infrastructure (e.g., rooftops, utility towers).

Emerging Competitive Threats:

• TDS Telecommunications LLC: High-speed wireless networks (wireless broadband) pose a substitution risk for wireline and cable broadband. Artificial intelligence advancements could create competitive disadvantages if not matched.
• Array Digital Infrastructure, Inc.: Emerging technologies and architectures like satellites and mesh transmission systems could serve as substitutes for traditional tower infrastructure, especially in rural markets.

Competitive Response Strategy:

• Telephone and Data Systems, Inc. is focused on investing in fiber, offering competitive products and services, enhancing customer experience, and improving cost efficiency. Array Digital Infrastructure, Inc. aims to drive colocation growth, increase ground ownership, and optimize its portfolio of towers.

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: TDS Telecommunications LLC faces declining video and voice connections due to cord-cutting and alternative technologies. Array Digital Infrastructure, Inc. is substantially dependent on a small number of wireless industry tenants, particularly T-Mobile US, Inc., and faces risks from lower demand for wireless services or changes in tenant business models. Fixed-rate escalators on contracts and ground leases could erode real revenues/margins if inflation persists.
• Technology Disruption: Risk of existing technologies becoming obsolete due to advancements (e.g., high-speed wireless broadband replacing wireline/cable). Inability to keep pace with artificial intelligence advancements could lead to competitive disadvantage. New technologies like satellites or mesh transmission systems could reduce demand for tower infrastructure.
• Customer Concentration: Array Digital Infrastructure, Inc.'s significant reliance on T-Mobile US, Inc. and other large carriers for a substantial portion of its revenues.

Operational & Execution Risks

• Supply Chain Vulnerabilities: Dependency on key vendors for equipment, services, and content, with risks including product shortages, extended lead times, financial difficulties of suppliers, or suppliers deeming Telephone and Data Systems, Inc. non-strategic. Supply chain disruptions from tariffs, raw material shortages, or natural disasters.
• Capacity Constraints: Delays or failures in significant network construction and systems implementation activities (e.g., obtaining zoning, permits, vendor equipment availability, labor shortages, inflation) could impede expansion and product capabilities.
• Real Estate Rights: Inability to protect real estate rights for Array Digital Infrastructure, Inc.'s towers, including non-renewal of ground leases or transfers of land interests, could adversely affect operations.
• Unforeseen Events: Exposure to extreme weather events, natural disasters (including wildfires), and structural deficiencies that could interrupt service, damage infrastructure, or result in legal claims and reputational harm.
• Talent Management: Challenges in attracting, developing, and retaining qualified and experienced associates, including key management personnel, due to competition, limited supply, and rising wage levels.

Financial & Regulatory Risks

• Market & Financial Risks: Uncertainty in future cash flow and liquidity, level of indebtedness, and ability to access capital. Deterioration in capital markets, changes in interest rates, or credit rating downgrades could limit financing availability. Risk of failing to comply with debt covenants. Lack of diversification due to concentration in the U.S. telecommunications industry. Significant investments in unconsolidated wireless operating entities that Telephone and Data Systems, Inc. does not control could lead to losses.
• Regulatory & Compliance Risks: Operations are subject to extensive federal, state, and local regulation (FCC, FAA, state public utility commissions). Failure to comply with existing or new requirements, or adverse regulatory changes, could result in penalties, increased costs, or loss of licenses/support. Uncertainty in calculating and collecting fees and surcharges.
• Legal Proceedings: Involvement in legal and policy proceedings, including a federal False Claims Act inquiry related to Array Digital Infrastructure, Inc.'s participation in wireless spectrum license auctions and a stockholder derivative lawsuit alleging breach of fiduciary duty.

Innovation & Technology Leadership

Research & Development Focus:

• Core Technology Areas: TDS Telecommunications LLC focuses on fiber deployment, IP-based broadband networks, and IT modernization. Array Digital Infrastructure, Inc. supports the deployment of 5G and other wireless technologies.

Intellectual Property Portfolio:

• Licensing Programs: Array Digital Infrastructure, Inc. holds wireless spectrum licenses, some of which are subject to sale agreements or short-term lease agreements with T-Mobile US, Inc.

Technology Partnerships:

• TDS Telecommunications LLC's MVNO offerings are reliant on third parties for wireless service. Array Digital Infrastructure, Inc. has strategic alliances with major wireless carriers through its Master License Agreements.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: Telephone and Data Systems, Inc. conducts annual talent reviews and succession planning for the CEO and executive leadership team, which are reviewed with the Board of Directors.

Board Composition: Telephone and Data Systems, Inc. is a "controlled company" with over 50% of voting power held by the TDS Voting Trust, which has the power to elect eight directors (out of twelve). The Board of Directors receives regular updates on technology developments, cybersecurity threats, and mitigation plans, with the Audit Committee overseeing cybersecurity risk.

Human Capital Strategy

Workforce Composition:

• Total Employees: Approximately 4,000 full-time and part-time associates as of December 31, 2025.

Talent Management:

• Acquisition & Retention: Telephone and Data Systems, Inc. is committed to attracting, recruiting, and retaining qualified and experienced associates through competitive compensation, benefits, a safe workplace, and an engaging environment.
• Diversity & Development: The company provides job-specific, safety, security, and fraud awareness training, along with programs for continuous growth including educational assistance, developmental assignments, and mentoring. Associate Resource Groups promote dynamic community experiences and professional development.

Environmental & Social Impact

Social Impact Initiatives:

• Community Investment: Telephone and Data Systems, Inc. supports and enhances the communities it serves through local and philanthropic initiatives, addressing the digital divide and providing critical resources. Associates are encouraged to volunteer.

Business Cyclicality & Seasonality

Demand Patterns:

• Economic Sensitivity: Array Digital Infrastructure, Inc.'s revenues may be adversely affected by economic downturns that lead wireless carriers to reduce network capital expenditures.

Regulatory Environment & Compliance

Regulatory Framework:

• Industry-Specific Regulations:
  • TDS Telecommunications LLC: Subject to federal (FCC) and state public utility commission regulations for telecommunications services, as well as state and local laws concerning privacy, data security, and consumer protection. Video services require state or local franchises.
  • Array Digital Infrastructure, Inc.: Regulated by the FCC and FAA for tower construction, modification, maintenance, registration, lighting, and marking. New construction and modifications are also subject to environmental (NEPA) and historic preservation (NHPA) acts, and local land use/zoning regulations.
• Legal Proceedings:
  • False Claims Act: Array Digital Infrastructure, Inc. and Telephone and Data Systems, Inc. were subject to DOJ inquiries and private party lawsuits related to participation in FCC wireless spectrum license auctions. The King Street Wireless, L.P. case concluded in January 2026, while the Advantage Spectrum, L.P. case was remanded to district court for further proceedings.
  • Stockholder Derivative Lawsuit: A lawsuit was filed in January 2025 against certain directors and officers of Telephone and Data Systems, Inc. and Array Digital Infrastructure, Inc., alleging breach of fiduciary duty. A motion to dismiss was filed, with a status conference set for April 2026.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: Telephone and Data Systems, Inc. reported an income tax benefit of $(62.2) million on income before income taxes of $89.0 million in 2025, resulting in an effective tax rate of -69.9%. This was primarily due to favorable reductions to valuation allowances related to deferred tax assets expected to be realized from the sale of wireless operations and pending spectrum sales.

Insurance & Risk Transfer

Risk Management Framework:

• Insurance Coverage: Array Digital Infrastructure, Inc. and TDS Telecommunications LLC maintain insurance to cover the estimated cost of replacing damaged towers, network equipment, and damage to surrounding property.