Amidst the ongoing drama of UScellular's strategic review and the industry-wide anxieties around cable wireless competition, a quiet revolution is brewing within the unassuming confines of TDS Telecom. While analysts and investors fixate on the turbulent wireless landscape, TDS Telecom is quietly outperforming expectations, building a robust fiber infrastructure, and demonstrating a savvy business acumen that seems to have even surprised its own parent company.

The first quarter 2024 earnings call (TDS Q1 2024 Earnings Call Transcript) offered a stark contrast between the two TDS business units. While UScellular grappled with shrinking subscriber pools and aggressive cable pricing wars, TDS Telecom reported its "strongest quarter of revenues and profitability since starting our fiber program." This isn't just a fleeting success story, either. It's a deliberate, multi-year strategy coming to fruition, and the numbers tell a compelling tale.

TDS Telecom's adjusted EBITDA soared by 38% year-over-year, a figure that dwarfs UScellular's modest 8% increase. This remarkable growth stems from a disciplined execution of their fiber expansion strategy, coupled with a shrewd focus on cost management. They're building fiber networks at a rapid pace, adding 28,000 marketable fiber service addresses in the quarter and exceeding 100,000 residential broadband connections in their expansion markets.

What's particularly interesting is that this success seems to have taken even TDS itself by surprise. While acknowledging Telecom's strong growth, Vicki Villacrez, TDS's CFO, characterized the new $375 million debt facility (primarily aimed at funding Telecom's fiber program) as providing "optionality" and "flexibility." This suggests a degree of hesitancy, a hedging of bets, when the numbers clearly point to an aggressive and successful strategy that warrants full commitment.

It's as if TDS is still trying to figure out what it has on its hands. Is it a steady, reliable dividend payer (as exemplified by the recent modest dividend increase)? Or is it a growth-oriented company poised to capitalize on a rapidly evolving broadband landscape?

Here's the thing: TDS Telecom is demonstrating it can be both. It's generating healthy returns for dividend investors while simultaneously building a future-proof business model. They've already achieved two-thirds of their ambitious goal of 1.2 million marketable fiber service addresses and nearly half of their footprint is served by fiber, well on track to meet their 60% target.

Hypothesis: TDS Telecom is undervalued due to market misperception and a lack of understanding of its long-term potential.

Here's the potential disconnect:

TDS is perceived primarily as a wireless company: The market tends to view TDS through the lens of UScellular's struggles, overlooking the potential of its burgeoning fiber business.

TDS Telecom is seen as a slow-growth, incumbent player: Analysts fail to grasp the full impact of their expansion strategy and the value of their growing fiber footprint.

Lack of segment reporting obfuscates Telecom's true value: The absence of a separate segment report for TDS Telecom makes it difficult to assess its profitability and growth trajectory independently of UScellular.

This disconnect creates a significant opportunity for savvy investors. While the spotlight remains firmly fixed on the unfolding saga of UScellular, TDS Telecom is quietly building a sustainable, high-growth business, outsmarting both Wall Street and its own parent company in the process. As their fiber program continues to gain momentum and their financials reflect the fruits of their labor, the market will be forced to re-evaluate TDS Telecom, recognizing its true value and potential.

TDS Telecom's Adjusted EBITDA Growth

The following chart compares the adjusted EBITDA growth of TDS Telecom and UScellular, highlighting the superior performance of the fiber business.

"Fun Fact: Did you know TDS is one of the oldest telecommunications companies in the US, with roots dating back to 1895? It started as a small telephone company in Wisconsin and has grown into a national provider of communications services. Perhaps their history of quiet, steady growth is informing their current strategy, and perhaps Wall Street is about to be reminded that slow and steady wins the race."