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Telephone & Data Systems (TDS) on Track to Boost Fiber Suite

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Telephone and Data Systems Inc. (TDS - Free Report) , a leading regional wireline voice and video service provider, is forging ahead with plans to expand its business in the fiber space. Toward this end, the company’s wireline subsidiary, TDS Telecommunications Corporation ("TDS Telecom"), is inking deals with various fiber providers and cable companies.

Moreover, TDS Telecommunications plans to leverage different government programs like Connect America model (A-CAM) and its own capital to expand its fiber network within the existing ILEC (incumbent local exchange carrier) territory and other nearby markets.

Vicki Villacrez, SVP of finance and CFO for TDS Telecommunications, stated (during the company’s second-quarter earnings call) that these programs are part of a broader platform it is implementing to equip more of its network with fiber.

Buyouts to Expand Fiber Network

TDS Broadband Service LLC (operated by TDS Telecom) recently inked a deal to acquire Central Oregon-based Crestview Cable Communications. If this proposed acquisition goes through, it will add more than 21,000 service addresses to the adjacent BendBroadband system, which the telco acquired in 2014. Moreover, this deal goes well with its plans to invest in and expand its FTTH (fiber-to-the-home) footprint in key communities such as La Pine. Per the agreement, the company will enhance broadband speed and modernize its video products in Prineville and across the larger Crestview footprint.

The financial terms of the transaction have not yet been disclosed and are subject to regulatory approvals by federal and local bodies. The company is looking forward to three main regulatory approvals, which include Local franchise authority approvals, FCC approval of assignment of Cable Television Relay Service (CARS) license and consents to assignment of various agreements, since the transaction is an asset purchase one.

The service provider is also acquiring regional assets like Wisconsin-based Sun Prairie Utilities' (SPU) telecom assets to accelerate fiber-based broadband coverage.  Sun Prairie Utilities serves 242 residents and 31 businesses.

In Feb 2017, the company completed the purchase of internet service provider, InterLinx Communications LLC and its unit Tonaquint Networks LLC based in Southern Utah, U.S. The deal added more than 170 route miles of fiber-optic transport of InterLinx to TDS Broadband Services.

Although the initial focus of these deals is to serve more residential customers and foster business growth within the city, TDS Telecommunication is exploring business opportunities. These business moves highlight the company’s efforts to diversify its business model from a telecom service provider to fiber provider.

Winding Up

Telephone and Data Systems is looking for lucrative opportunities to bring more fiber in order to better address services, both in its current footprint and adjacent areas. By leveraging on fiber, the telco is trying to respond to customers' growing TV and broadband service demand. At the end of the reported second-quarter 2017, the service provider claimed to have expanded about 19% of its network route miles with fiber.

The telco’s fiber network investments are also driving positive results in consumer services like Internet Protocol TV (IPTV). Its IPTV connections grew 12.1% year over year to 46,200, with a net addition of 5,000 connections compared with the prior year. Additionally, the service provider is witnessing more customers opting to purchase higher speeds, including 1 Gbps, in its FTTH-enabled markets.

Zacks Rank and Price Performance

Telephone and Data Systems currently carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here. We believe that the company’s impressive Zacks Rank is backed by the prospects of its wireless segment, U.S. Cellular Corp. (USM - Free Report) and its IPTV growth.

However, the price performance has been disappointing. Over the past three months, shares of Telephone & Data Systems have registered a positive return of 7.18% but failed to surpass the industry’s gain of 7.63%.

The company competes with the likes of CenturyLink Inc. (CTL - Free Report) and Frontier Communications Corp. (FTR - Free Report) .

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