All right. Just making sure my mic is on. Okay, so Doug, it's been an exciting year for US Cellular. A lot going on at the company. Maybe you could just kind of update us on the strategic review, where you were at in the process, what's been monetized to date, kind of what remains of USc ellular looking forward.
Okay. Happy to do that. So let me start from the beginning. In May of this year, we entered into a deal with T-Mobile to sell our wireless operations. So that entails our customers, our wireless network, our brand, our distribution. It included 30% of our spectrum assets. And so what it did not include was our own towers. We own 4,400 owned towers. It also did not include our own partnerships. So we own minority stakes in certain Verizon and AT&T partnerships that generate about $150 million per year in distributions. And it also did not include about 70% of our spectrum. So we retained those. That transaction with T-Mobile is subject to regulatory approval by the Department of Justice, by the FCC, and other parties. And as we've talked about, we expect that transaction to be approved and closed in mid-2025.
We also disclosed in May that our next objective was to opportunistically monetize the 70% of remaining spectrum, and so we marketed that spectrum throughout the summer, and as a result of that we announced a deal with Verizon in October where we sold about $1 billion of that spectrum. We sold our 800, 850 MHz, 850 megahertz spectrum to Verizon. And there were a couple other small sales folded in there, but almost all of that $1 billion-dollar sale was to Verizon for the 850. That transaction, of course, is contingent upon closing the T-Mobile deal, and also that transaction is contingent upon T-Mobile completing the spectrum lease, which extends up to a year after the close of the T-Mobile deal.
Then in November, we announced another spectrum deal with AT&T to sell additional spectrum to AT&T, our 3.45 gigahertz spectrum, as well as our 700 megahertz B and C Block to AT&T for $1.018 billion. That transaction is also contingent upon the close of the T-Mobile transaction. However, that transaction would be able to close subject to other conditions upon close of the T-Mobile transaction. It does not necessarily need to wait for the conclusion of the spectrum lease with T-Mobile. So all told, we monetized assets that were, you know, if all regulatory approvals are obtained and other closing conditions are met, we'll provide about $6.5 billion of gross proceeds. We've disclosed that. We expect cash taxes in the range of $550 million-$700 million on those transactions. So that puts us, you know, on the net just under $6 billion of proceeds.
We, of course, you know, in conjunction with the T-Mobile deal, there's a debt exchange offer on our retail debt, assuming, you know, there's an uptake on that of 100%. That would decrease the proceeds by another $2 billion. And then all of our term debt is also immediately payable upon close of the T-Mobile transaction. That's about $900 million. So when you put all that together, you know, the proceeds, the net proceeds after cash taxes and all debt is paid down is, you know, $3 billion or slightly less than $3 billion. So a lot going on in 2024 and a lot of transactions we feel really good about. And we still, you know, again, you know, we still hold our towers running, and we plan to run that business after close. We hold the equity method investments.
After all those transactions, we still hold 30% of our spectrum, most notably our C-Band spectrum, which we believe has a substantial value. We will continue to opportunistically monetize that, although it may take time to do that because we just ran a process. The good news about the C-Band spectrum is that it has excellent speed and capacity. There's an ecosystem that's built out among the carriers already. You know, carriers are able to use that spectrum. It has long buildout deadlines. Our first buildout deadline for the C-Band spectrum is in 2029. Second one is in 2030-2031, or if we miss the 2029. We have a lot of time and optionality with respect to that spectrum. We feel good about our ability to monetize that for a fair price over time.
Okay. Great. Yeah. That was a very good overview, so obviously the big transaction to sell your retail operations and 30% of your spectrum to T-Mobile, you talked about that closing mid-2025. Maybe you could just update us on the regulatory process there. We talked to T-Mobile earlier. They sounded, you know, pretty excited about the opportunity, you know, to take over those operations, and does the change in administration with Republicans coming into office influence at all or give you any added confidence in kinda the odds of approval?
Yeah. Happy to hear perspective on that. So the regulatory process and the primary constituencies are the Department of Justice and the FCC. There's other ones as well, but those are the primary agencies that we're navigating through. What I would say, everything is on track and progressing on the timeline that we had expected. There has been no events or feedback that cause us concerns. We feel like we're still on track for mid-2025 close. You know, with the FCC, we filed our public interest statement. The FCC put it out for public comment in late October. That process will conclude at the end of January. So again, that's on track with the timeline that we expected. Eric, on your question about change in administration, we believe it has really no impact.
We were very optimistic under a Biden-Harris administration that this deal would receive approval and close. We remain very optimistic under a Trump administration. So really no change in our outlook based on that change in administration. And, we remain as optimistic as we did when we signed the deal, that we'll have a successful regulatory approval and close.
Fair enough. And I guess just an update, until that transaction closes, obviously kind of running it, you know, business as usual. We're in kind of the fourth quarter, a very, you know, heavily promotional quarter, in terms of, you know, new iPhone launches, you know, Black Friday promotions, holiday promotions. You know, any update in the wireless business itself and kinda, you know, activity levels or upgrades, that you've seen in the quarter, how that's tracked versus your expectations?
Yeah. I'll start with second and third quarters because we, you know, looking back, our fourth quarter of last year and our first quarter of this year, we're below our expectations. And we took actions to change our trajectory. Most notably, we got more promotionally aggressive. We took off plan requirements and trading requirements up in new acquisition. We really invested in 2024 and our existing customers. Two-thirds of our promotional budget was dedicated to our existing customers. And we've seen results. In the second and third quarter, our subscriber results improved substantially over the prior year. In the third quarter, our retail net additions improved 23,000 year- over- year. What I would say, Eric, to your question about how Q4 is going, upgrade rates have been down all year.
I know all of us involved in the industry with Apple's AI features, you know, were concerned, is that going to trigger substantial upgrades? It has not today. It didn't in the third quarter at launch of the iPhone. I can tell you in Q4, we're not seeing any kinda big bang impact on upgrade rates. I would say it's trending, you know, at or below prior year, and probably is the same for the industry. You know, whether that eventually triggers, you know, upgrades, at a very high level remains to be seen. I just think the use cases and, sort of customer demand for those features, is not at a high level yet. It, you know, maybe it'll get there, but, we're not seeing, you know, our upgrade rates are down throughout the year.
I would just add to that, our churn has been down the last two quarters as well. And we'll take that trade-off all day long if we can have, you know, lower upgrade rates, our postpaid customers are happy in their current devices, and we're having decreases in churn. That's a really good result. And so, and we're looking, you know, and we'll certainly, when our customers want an upgrade, we wanna be there for them. But if they wanna stay on plan, that's fine too.
Yep. No, fair enough. So touching on your towers business, obviously that's gonna be a critical part of, you know, core part of US Cellular going forward. Maybe you could just talk about what the environment looks like in the tower business for new colocations. I know you've talked about, you know, adding second or third tenants to your towers. I mean, we've, from covering the public tower space, we've seen, we saw a big surge in demand kind of early in the 5G upgrade cycle from people, you know, amending their sites, adding mid-band spectrum. It kinda slowed a little bit in 2023 and early 2024, although there are some signs that we're starting to pick back up again. So maybe you could just talk about kinda carrier activity levels at your sites and the opportunity, of course, to colocate more tenants on the sites.
Yeah. So you said it, Eric. You know, because of the 5G cycle and, you know, in 2023 and 2024, relative to the first few years of 5G, CapEx activity has subsided a bit among carriers. That's impacted new colocations. And so our revenue growth rate has slowed in 2024 relative to what it's been. And, you know, this is a cyclical business. We're gonna be beholden to the capital cycles of, you know, the big three carriers. And that's fine. I mean, long term, we're very optimistic about when you look at, you know, the capacity needs of carriers in the next five years. We expect them to double. That's gonna require either more spectrum or densification, but densification's gonna be part of that equation. Certainly with 6G, there's gonna be a densification element. And so long term, we're very bullish on this business.
I can tell you, we did see a nice pickup in new applications in November. You know, one month doesn't make a trend, but you know, we're optimistic about that. We'll see where it goes, and you know, while you know, 2023 and 2024 have been slower with new applications, it has been across the industry. It's just acknowledgment this is a cyclical business. Long term, you know, we feel very well positioned about towers, and we have you know, the last part of your question, capacity in towers, we have a lot of capacity. We have 4,400 towers, currently 1,500, 1,500 of them have colocators, and we have 2,400 total colocators. So we have a lot of rad centers to rent, and so capacity is not our issue.
As you think about the T-Mobile transaction closing, obviously one of the tenants on the tower is US Cellular itself. Like, what do you think tenancy could look like? I think you've talked about how there could be some naked sites where they take down the US Cellular equipment where there aren't any tenants. So how many towers do you think might not have any tenancies pro forma of the T-Mobile transaction? What are the opportunities for those sites? And then separately, what do you think kinda the tenancy ratios could look like for the remainder of the portfolio? Can you get those up to, you know, two tenants per tower is kind of the average we've seen over time for mature tower sites in the U.S.?
Yeah. So when you do the straight math on tenancy rates, you mentioned, you know, we're at 1.55 right now with US Cellular being the one. So when you take away the one, you know, once we sell our wireless business, it goes down to 0.55. But then when you add in the 2,015 towers T-Mobile is committed to, that 0.55 goes back up to 1.0. And then, as you mentioned, so it's at 1.0 with 4,400 owned towers, but we're going to have naked towers in the range of 800 to 1,800 naked towers. We're to make decisions in each tower as to which ones to decommission. We'll certainly decommission some, but some we won't. I mean, we're gonna look at, hey, what is the ground rent? Is it a high ground rent, or do we own the land, or is it a low ground rent?
We can hold this for a while. You know, that's one factor. We'll look at what is the prospect of future colocations? Is it in an attractive location? We're very, very optimistic about getting colocations in the next one, two, or three years. You know, that might compel us to hold that. And the other thing is, you know, do we have the opportunity to sell or transfer a tower to a third party and avoid the decommissioning cost? We'll look at that as well. So, you know, that'll all be looked at. Certainly, we'll, we will decommission some towers again in the range of 800-1,800. Once we start decommissioning, that alone will make that tenancy ratio go up from 1.0 to numbers north of that.
You know, how high it gets. It's really difficult to project tenancy rates because, you know, we're dependent on what towers T-Mobile selects, what towers we ultimately elect to decommission. So it's really difficult to do that. We acknowledge our tenancy rates below the big three tower companies, and it's below other tower companies as well. It's a product of we built this tower portfolio for a wireless company, not to become a tower company. So as a result of that, we're starting with lower tenancy ratios. And that's fine. You know, the advantage of that is we have a lot of capacity in our towers and a lot of room for growth. Even with those lower ratios, you know, we expect this to be a very profitable business.
You know, we've talked about in excess of 50% EBITDA margins three to five years after closing the T-Mobile transaction.
Fair enough, and as you look at those sites as well, and you think about your market footprint, I mean, obviously a lot of in initial 5G amendment activity was in more densely urban markets. Do you think some of it is just timing related that a lot of the carriers are now kinda shifting their focus to move into more suburban and rural areas? You know, so do you think that could play into maybe an uptick in new colocations or new amendments?
Yeah, it may. I mean, that's one of the things we view as an opportunity for us is that, you know, we have a lot of uniquely positioned towers. So we'll have to see how that plays out in carrier 5G build plans. But again, that's one of the, you know, the assets of our towers we talked about. You know, we have 30% of our towers are in places where no other carriers within two miles. And so, you know, we consider that to be an asset as far as our towers being in unique locations that, you know, could, you know, trigger future growth because, you know, there's a lot of places where we're the only game in town for, you know, certain areas to put radios.
Did the spectrum transactions with AT&T and Verizon have any impact on your towers and any tenancies that they will, you know, absorb as a result of acquiring the spectrum, or is that still kind of to be determined?
Yeah, those were spectrum deals only. So there was no tower commitment tied to those deals. I mean, recognize that, you know, AT&T and Verizon are tower customers that, you know, provide significant tower revenues to us. We have a great relationship with those carriers from a tower company perspective. And so, you know, we expect robust business with both those carriers in the future. But there was no tie-in to tower commitments with the spectrum deals.
We've seen some, you know, private tower transactions, you know, over the last couple of years. Verizon recently sold their towers for a pretty nice multiple. It definitely seems like there is a premium in the private market for towers versus the public market. That's been true for a long time, I think. How does that influence strategically how you think about the path going forward for, you know, holding onto the towers as a public company, you know, the potential to take them private? You know, how does how do you and the company and the board think about that?
Yeah, I think ultimately that type of analysis will be a board decision. It's something that, you know, the board will look at over time like you do for all businesses. What I would say is, you know, we're an operator of the tower business, and we currently operate it very successfully. And post-closure transaction, we'll keep operating it very well as we do today. So we're very comfortable operating the tower business. It has great economics, as I talked about earlier with the EBITDA margins and excellent growth prospects. So we're excited to be a tower operator. Certainly, if there's valuations that are presented that are compelling, you know, the board will look at that.
You know, I would say from a prioritization perspective, as a business, as a board, as a management team, we have been prioritizing the T-Mobile transaction, getting that through regulatory approval, the spectrum monetization process, and the big transactions first. And, you know, the future of the tower company, you know, given we operate it as part of our business now, you know, you know, those things will be looked at over time, but certainly we're very comfortable and excited about being an operator as we are today.
And so the remainder of your spectrum portfolio, as you mentioned, C-band is the majority of it in terms of value. Is there anything precluding the carriers from, you know, doing a second transaction with you before their first one closes? Is that an opportunity, or do you think this, you know, the C-band process may take a little bit longer just given that they all recently announced transactions with you?
Yeah, there's nothing precluding the carriers that we just entered into a transaction from doing another transaction. From a practical standpoint, we just ran a process for all of our spectrum to gauge interest, solicit bids. And it was a very successful process. I mean, getting those two sales for over $2 billion for substantial gains over book value, we feel really good about the result of that process and are very, very pleased. And, you know, not surprised that we didn't sell all the spectrum at prices that we wanted to sell those at. So we're, you know, we're not going to sort of initiate another process in the near term since we just got done with the process. Certainly, if inbound calls come in on our spectrum, we're going to entertain those and see where that goes.
So we'll, you know, we'll have a cooling-off period. At some point in time, we'll reengage and we'll run another process. And I talked earlier in our discussion about the long-term value of the C-Band spectrum. We feel very, very good about it, given its attributes and the optionality we have with the extended build deadline. So, we're very comfortable holding it until we get a price that we believe is fair and appropriate.
And I assume as well the fact that there's really nothing in the spectrum pipeline. I mean, the FCC currently doesn't even have spectrum auction authority. Hopefully that gets restored, but it seems like there's really just a lack of future spectrum, you know, industry-wide, that's gonna be available for some period of time. And obviously, hopefully new administration can get that sorted out, but it seems like that would put you in a good position, holding some very strategic assets.
And to be clear, as a company and for our business, for our nation, we believe the FCC spectrum authority should be restored and we should get, you know, and I know the NTIA is looking at spectrum bands, but the spectrum should be made available, as quickly as possible, you know, for the good of our nation, our people, you know, the carriers, et cetera. But all that said, yeah, I mean, it's from a short-term, you know, tower-only perspective, that there is some advantages of spectrum scarcity, which again, is that, you know, we don't think is a good thing long-term, but there is, you know, there is that perspective, yes.
Yeah. And you also have a millimeter wave portfolio as well. And, you know, we actually saw one of your competitors return some of their licenses to the FCC 'cause they couldn't meet the build requirements. So how do you think about what the potential value could be of that millimeter wave portfolio? Obviously, Verizon's been very vocal about deploying that in more dense urban areas. You guys have deployed it in some of your fixed wireless solutions, but, you know, how do you think about that asset?
Yeah, well, we still think it has value. It certainly, you know, because of its propagation characteristics, its value in dense areas, you know, urban, fairgrounds, stadium, and, you know, it really has some compelling characteristics in those types of environments. You know, in the third quarter, we did acknowledge that the spectrum we believed was diminished in value, and we wrote that spectrum down by $133 million. Our book value of that spectrum is now equal to what we think the fair value is, which is $161 million. So we still think it retains value. You know, obviously technology will evolve, et cetera.
We believe there is value that carriers are willing to pay, albeit the value is not necessarily in, you know, rural areas and the places where, you know, T-Mobile returned the spectrum, but they didn't return it in urban areas where there's use cases for it and they are using it. You know, there is still value there, but it's just, it's maybe different than when the spectrum was first auctioned as far as, you know, where that value's being realized.
And one of the other pieces of the puzzle is your wireless partnerships that you alluded to earlier. There is some precedent here. Verizon has, you know, bought back some ownership stakes from Consolidated Communications a number of years ago. So maybe you could just talk about, you know, whether there's an official process or it's probably more just a negotiation with another carrier around potentially monetizing those as well.
Yeah, we don't have any process running with respect to the partnerships. We're perfectly happy holding onto those partnerships. They generate in the neighborhood of $150-160 million of cash distributions per year, and you know, we're in a position as a business. We're generating positive free cash flow. We have ample liquidity. We have $750 million of liquidity. We don't have any strategic or liquidity reason for needing to monetize those investments, so when we look at those investments, it's very much financial calculus. You know, what's the, you know, sort of the value of those investments in perpetuity from an after-tax, you know, discounted cash flow perspective relative to what an offer may be from, you know, the majority partner to buy those assets, right? And from an after-tax perspective, we do have a very low tax basis in those assets.
You know, that would require a premium in order to equal what we think the value of the distributions into perpetuity would be, but you know, right now there's no offer on the table. If there was an offer on the table, we would certainly entertain it and look at it, but again, it's very much a financial equation for us as to what to do with those partnerships, and we're perfectly happy holding onto them as we've done for many years and realizing the substantial cash distributions that we do every year.
How should we think about return of capital to shareholders when some of these transactions close, the, you know, the T-Mobile sale, the spectrum sales? How are you guys kind of thinking about that into next year?
Yeah, the short answer is that hasn't been determined yet. And ultimately, the board will decide, you know, what's gonna be returned to shareholders. Once cash does start coming in, I mean, recognize it might be through multiple closes, right? I talked about the three transactions. We have T-Mobile, we have the Verizon spectrum, we have the AT&T transaction. They all might have separate close dates, separate cash proceeds events. Certainly when cash, you know, if and when they do close and the cash comes in the door, we have a business that's remaining at USC, the tower business and the investments that generate positive free cash flow. So certainly any cash would be excess cash. And, you know, to the extent, you know, there's strategies at the TowerC o that may require that cash. That could be an impact.
Needs for decommissioning towers could be use of cash. There could be, you know, things like employee severance that'd be cared for. But after all those things are contemplated, the board will have to decide what to do with the cash. You know, we've done special dividends in the past when we sold our St. Louis and Chicago markets 10 years ago. There's a special dividend declared by the board at that time. So there is a precedent. What happens in this case, you know, ultimately the board will have to decide once cash starts coming in the door and we identify the, you know, the specific uses for it.
How do you think much longer term about the potential margins of this business, assuming that what's left over is largely a tower business plus the wireless partnerships? 'Cause we've seen some of your larger scale tower companies with, you know, 60%-70% type of margins. Obviously, it's a pretty, you know, SG&A light, very high margin business. Do you think you can continue to grow those over time as the business scales?
Yeah, we do. And we've disclosed, you know, three to five years out, we believe the tower company will have an EBITDA margin in excess of 50%. We're certainly gonna look to grow that, as much as we can. And I'm gonna go back to the tenancy ratios. You know, we recognize greater than 50% is less than the margins that the big three tower companies are operating at. And it's the primary factor is tenancy ratio and the fact that, you know, right now we're at 1.55, you know, even post-transaction, post-decommissioning of the towers, we'll be below two. We'll be, you know, maybe somewhere between one and two. That's gonna be below where the big three tower companies are at. That has a direct impact on margin.
When you think about things like, you know, ground rent and property taxes and the thing that, you know, the cost it takes to run the towers, that is the single biggest variable in determining tower margin. And because we built this as a wireless, our tower portfolio was built as a wireless company, not as a tower company, you know, we have that as a bit of a margin headwind. But again, you know, even at lower margins in the 50s%, still really nice margins and cash flow in that business.
No, for sure. One other big thematic, you've been talking about for a while is your fixed wireless footprint. You've been scaling that nicely. So maybe, maybe you could just kind of update us on where you're at, the future trajectory of that business. We hear a lot about fixed wireless in more urban, dense urban areas, but you guys have been successfully doing it in some more suburban and rural areas as well.
Yeah, happy to do that. So, yeah, we have 140,000 fixed wireless customers and, you know, we grew that 32% yea- over- year, as of 9/30. So we continue robust growth in that business. We run an excess capacity model, so it's very high margin. We're not investing CapEx, you know, in our network to accommodate fixed wireless. It runs off our mobility network on excess capacity. So really nice model. It's gonna generate, we expect over $100 million of revenue next year. And, it's been just a great business for us. We think ultimately we can get up to, you know, and using current technologies and so forth and our excess capacity model, we can accommodate up to 315,000 fixed wireless customers. So, you know, that's more than double where we're at today. So still a lot of runway for growth.
I lost track of my thought on, oh, what I would say about, you know, where we're selling fixed wireless, you know. A lot of it is in suburban areas. We have fixed wireless customers. A little over half of them are in areas where there is cable competition or cable and fiber competition. So we're able to effectively compete against cable to sell this product. And, you know, about 40-some% are in areas served by ILEC only, non-fiber, and then, you know, the remainder is just unserved areas. But, you know, that that's one, you know, learning over the past few years, I think, for everybody is that, you know, fixed wireless competes with wireline and pretty effectively.
Yeah. Yeah. No, totally. We definitely agree. I mean, there is a large, there's been several large stimulus programs, like there's the BEAD program as well to deliver more fiber into rural areas. I know that's something, you know, TDS has talked about. But, how do you view the opportunities maybe for fixed wireless in some of these rural locations to get subsidy funding? There's been a lot of talk about the new administration, whether they'll prioritize some alternative technologies like satellite or fixed wireless, but I don't know if you have any view on, you know, subsidized opportunities to, you know, deploy it further.
Yeah, we're staying in the BEAD game, and we've applied in all our states to be, you know, to be part of the process with BEAD. There are two barriers to BEAD. Well, there's, you know, multiple barriers to BEAD, but there are two we're most concerned about. One is the requirement that 100% of designated geographical areas be covered. For fixed wireless, that is a very, very difficult requirement. You know, when you think about, you can have, you know, three homes in a valley between two hills that you have to build one tower for. Those economics don't work. And those types of economics crop up all over various areas. And so that's a problem. The other one is the affordability requirement that's been put in there and, you know, the $30 requirement in certain cases.
And that does impact the economic model. Those two things make it challenging for us to go it alone in BEAD. However, to the extent we can partner with others, maybe wireline providers and so forth, we're gonna look at perhaps doing that and keep monitoring it. But you know, right now under the current rules and structure, us going it alone with BEAD bids for fixed wireless is not viable.
Do you, do you see any change in competitive dynamics when you're selling fixed wireless in rural markets in terms of when you sell against, you know, a DSL connection, you're a lot more successful than selling against cable, or has it actually been, you've been pretty successful with both?
Eric, I have to go back with both, and it's just good, you know, when you look at our customers and with over 50% of them in areas where there is cable or fiber. That's evidence that we're successfully competing against them. Then, you know, again, about 40% in cases where there's, you know, sort of copper DSL, we can compete effectively in both areas. And customers like to bundle. Like 80% of our fixed wireless customers also have a mobility line. And so, you know, like, they like being able to bundle their broadband and their mobility. And so, you know, the product works, and as a result, we're able to compete against cable and be very effective.
I appreciate that. So, we're just about out of time, but Doug, really appreciate you joining us today, providing your thoughts on USC and, thank you for making the trip out to sunny LA from cold Chicago. Appreciate it.
Okay. Thanks. Thanks for having us, Eric. We gained about 50 degrees Fahrenheit by being out here, so it feels good.
All right. Appreciate it. Thanks, everyone.