TDS was born out of an affinity for rural and small town people of America. Telephone Systems, Inc. (TSI) was started with the purchase of 10 small-town Wisconsin telephone companies that LeRoy T. Carlson and a handful of others pulled together. The key to the success of this telephone holding company was, first, to do whatever was necessary to update and modernize service in each acquisition.
Make your profits on better service
Carlson had been doing business based on better customer service since he was a teenager selling produce out of a pushcart in South Chicago during the Great Depression. Instead of under-pricing the local grocers, he made his profits on quality, convenience, and services such as taking next-day orders.
By the time he was buying up telephone companies in Wisconsin, he had earned an MBA from Harvard and had acquired Suttle Equipment Company (now Suttle Press), which printed forms for telephone companies and ushered Carlson into the telephone industry. In this industry, Carlson had an opportunity to serve what he saw as an under-appreciated part of America, the people in its rural areas and small towns.
Offer your customers the best technology
For rural customers, a purchase by Telephone and Data Systems, Inc. (TSI became TDS in 1970) meant an end to crank phones. Single-party lines were the priority service upgrade. Some acquisitions were operating with as many as 18 households sharing a line. System-wide, only 32 percent of service was single party in 1970; major construction pushed that number to 58 percent by the end of 1974. With reengineered outside plants and central office switching systems came increased use—30 percent more on single-party lines.
Central offices were converted to allow direct distance dialing (DDD) to any station in the United States and Canada—an industry innovation in the late 1960s. By dialing the last digit of their phone number after the 1, customers automatically tagged the call to their bill.
TDS was the first telephone company to use its own Customer Convenience Catalog illustrating products and describing services. Models included the Mod phone “with youth appeal,” the Starlite, and the Slenderette. By 1970 TDS was computerizing its billing and introducing touch-tone phones.
By the end of 1974 TDS had grown to 39 companies serving 205 communities in 17 states. Acquisitions were “snowballing” as Carlson had planned. For the first time, earnings were over $1 million.
The company was growing in a culture dedicated to customer service, committed to long-term sustained growth, and operating with a large degree of local autonomy.
In 1975, a customer in Waunakee, Wis. became TDS’s 100,000th subscriber. In five years, it had become the 13th largest independent telephone company in the United States. TDS had expanded and regrouped itself into five growing geographic regions covering 19 states. It was facing accelerating advances in technology and feeling the first nudges of change in public policy governing “the natural monopoly.”
Mr. Carlson goes to Japan
It was all happening so fast. General Electric was working on a “$10, 3-inch silicon wafer” that would replace the magnetic tapes used by computers. Bell Laboratories experimentally connected its downtown Chicago offices using a telephone system of “hair-thin glass fibers, each capable of carrying 672 one-way conversations.” A small company called Editec was selling high-speed information retrieval for $350 per search on its “Electric Library” accessing databases via computer and telephone.
It was time for TDS to begin equipping itself with the switches that would turn “plain old telephone service” into fledgling telecommunications. In 1976, the telephone’s 100th birthday, LeRoy Carlson, his wife Margaret, and a contingent of TDS officials traveled to the Nippon Electric Company in Japan to sign contracts for the purchase of TDS’s first four electronic switching systems.
The contracts had to be signed on Japanese soil to be recognized by the Japanese government.
TDS’s first ND 20B was custom-built, tested, disassembled, and shipped to Waunakee’s central office. Three others were installed in Medford and Verona, Wis. and Concord Tenn. The switch featured stored program controls for incoming and outgoing calls, retention of information for toll call billing, and full custom calling features such as call forwarding and waiting, three-way conference calls, and speed dialing.
“One Bell System. It works”
The “natural monopoly,” the “benevolent monopoly,” the Bell System. Its breakup in 1984 began with a 1968 court decision that allowed the attachment of customer-owned equipment to the network. In 1974 the Justice Department brought an antitrust suit against the system alleging that its dominant position in the industry allowed it to manipulate customer premise equipment, local exchange service, and long-distance service.
TDS and other independents battled what they saw as artificial competition eventually threatening universal service. The efficiencies of the Bell System’s unified long distance network had subsidized the higher cost of basic residential and small business service. They argued that two ideas were implicit in the 1934 Communications Act: Universal service was desirable and communications systems were natural monopolies.
Competition hit TDS first in key systems and private automatic exchanges (PABXs). TDS was regulated and had to serve every customer regardless of the cost; competing local and regional interconnects were not regulated and could cut prices to draw off the most lucrative accounts. For now, TDS was winning. With years of good service and customer relations behind it, TDS had competed successfully in over 70 situations.
Moving into the second decade
In 1979 TDS ended its first decade with 47 local offices, 171,684 telephones in service, and 75.6 percent single party lines. In the next decade, the company would acquire exchanges from large telephone holding companies—12 exchanges with 13,000 telephones, 15 exchanges with 39,000 telephones. It would expand beyond traditional telephone service. Cable, paging, and cellular were business opportunities that required large amounts of capital. The company would go public.
By the early 1980s, TDS was no longer a collection of telephone companies, but included cable television, paging and cellular, all of which required venture capital.
On Dec. 29, 1981, Telephone and Data Systems (TDS on the American Stock Exchange) sold its first one million shares of common stock. Its initial public offering was quickly followed by two million more shares in 1982. The company had expanded its equity base by $25 million. The stock, which closed at 8 ¾ in 1981, ended 1982 at 16 5/8.
TDS buys big in the Sunbelt
TDS’s 1980 goal was for its new nonregulated ventures to make up 25 percent of its revenue in five years. For now, the telephone side was responsible for 95 percent of its revenue and almost all of its earnings. Telephone was carrying the freight.
In a marked shift from its early acquisition of smaller, locally owned telephone companies, TDS began acquiring exchanges from large telephone holding companies. It increased its size by 31 percent when it purchased Oklahoma Communication Systems, Inc., and Tennessee Telephone Company. With the purchase of Quincy Telephone Company in northern Florida, 50 percent of its customers were in the fast-growing Sunbelt.
TDS paid $12,750,000 in cash and preferred stock for the 15 new exchanges in Tennessee. They ranged from the pastoral countryside of the Tennessee River, where four-party service was good service, to fast-growing suburban areas adjacent to Knoxville and Nashville. The LaVergne exchange included “Interchange City,” one thousand acres of major industrial and manufacturing firms requiring sophisticated telephony. In 1999, LaVergne will be an early site for TDS Telecom’s deployment of digital subscriber line (DSL) high-speed Internet access.
TDS wins in Washington
Carlson’s approach to service upgrades always had been to “do it right the first time and your customers will thank you later.” A key to that first-class service was low-interest loans from the Rural Electrification Association (REA), a part of the US Department of Agriculture. In 1981, TDS’s construction budget was $20,000,000, most of it from REA loans. President Reagan was elected on a promise to cut the federal budget and reduce inflation. REA was an early target.
The original Reagan budget proposal cut REA funding by 50 percent in 1981 and eliminated the program entirely in 1982. “Maybe we shouldn’t have boasted that 96 percent of American households have telephones,” a TDS official wondered. “The budget cutters figure the REA’s job is done.”
But REA funds continued to be needed for the 4 percent still without service.
TDS, directed by Ted Carlson, its new president and son of its founder, lead a campaign with other independent telephone companies to bring those points home to senators and representatives. Customers and employees wrote letters. On June 2, 1981, a joint House/Senate Conference Committee voted to reject the spending cuts. The REA insured loan program was secure. The “little guys” had triumphed.
Gearing up for another new age
In 1982, Roy Carlson had 30 IBM personal computers and printers delivered to the homes of 30 TDS executives. He also arranged for computer classes for all of them, himself included. His goal was to help them realize the PC’s potential in TDS and the rest of communications in the Information Age.
Reagan visits Concord
By June 1983, it appeared that all was forgiven concerning Reagan and the REA. The President visited Farragut High School in Concord, Tenn. TDS had two days to lay 1,000 feet of 100-pair cable, install 52 White House phones with voice cut-off switches and lights in place of ringers, radio loops for secret service, loops for networks, and 20 phones for the general media. Eleven employees put in more than 150 hours of overtime. The government’s bill for the project was $8,000.
In 1983, Carlson founded U.S. Cellular
The next five
At the end of 1984, TDS was operating 59 local offices with 185,000 access lines in 22 states. In 1987 and 1988, it would acquire 16 local telephone companies. In 1988, it would become the 15th largest cellular operation in the United States.
By the late 1980s, business leaders recognized TDS as a formidable and profitable presence in telecommunications. In 1988, Fortune ranked TDS 75th among the 100 best stocks of that year.
In 20 years, TDS had grown from 10 small-town Wisconsin telephone companies to the nation’s eighth largest paging company, its eighth largest cellular company, and a mid-sized telecommunications business with 74 local offices in 27 states serving 264,000 access lines.
From 1985 through 1989, TDS spent over $200 million upgrading its telephone network to provide better and more economical service to its customers. By the end of 1989, two-thirds of TDS’s telephone customers were served by state-of-the-art digital switching equipment. By the end of 1990, nearly 40 percent of customers would place calls on high-speed, high-capacity fiber optic cable between their local exchange office and a major toll-switching facility.
Productivity was up, and maintenance costs were among the lowest in the industry. The Regulated Trouble Index (troubles per 100 access lines per month) dropped from 7.51 in 1980 to 2.37 in 1989. Of the company’s 25 acquisitions between mid-1984 and the end of 1988, 16 were made in 14 months. In one year, 30 percent of the local offices were granted rate orders. In 1988, TDS stock split three for two—twice!
A new name, a new leader
TDS’s newly formed telephone holding company was named TDS Telecom (TDS Telecommunications Corporation). In 1989, it earned approximately 70 percent of its parent company’s total revenues. On Jan. 5, 1990, James Barr III became president of TDS Telecom.
Barr pushed for bigger switches and faster upgrades. Today, many millions of dollars later, flagship switches serve most of TDS’ customers, and those still served by smaller switches benefit from faster upgrades.
Next Barr worked at building a TDS sales force and selling the idea of marketing to employees with a regulated-monopoly mindset in which customers had no choice about coming to their company for service. “Market coverage is an important piece of preparing for competition.”
Organizational restructuring was Barr’s third major undertaking. The old structure resembled the old Bell system, companies operating autonomously with layers of staff up the line duplicating and sometimes second-guessing each other. It worked for a regulated monopoly but it couldn’t have been worse for a productivity-driven competitive industry.
Barr says that preserving TDS’s local presence is a part of every restructuring decision the company makes. “I don’t know of any telephone company as dedicated to maintaining local presence as we are.”
Metrocom, USLink, TDSNET, VBO (virtual business office), NMO (Network Management Operations), BadgerNet, StarNet…These businesses, acronyms, and electronic tags that are TDS Telecom today were not a part of the company five years ago. Most are byproducts of two events: The Telecommunications Act of 1996 and a data revolution that is ongoing.
The act opened the local telephone business to competition; the revolution gave TDS Telecom tools to become more competitive.
Not among those who chafe under regulatory authority
Congress passed the Telecommunications Act of 1996 “to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications customers.” TDS Telecom had spent years developing good government and regulatory relationships.
The FCC’s 1996 Interconnection Orders mandated by the act allowed local exchange carriers with less than 2 percent of the nation’s access lines to petition for suspension or modification of those requirements. In May 1997, it adopted rules enabling local companies like TDS Telecom to receive support commensurate with the cost of serving customers through Jan. 1, 2001.
Although the industry continues to operate in a constantly changing web of federal and state regulations, both rulings left TDS Telecom and its customers with a degree of protection.
An out-of-territory plan
For years, TDS Telecom had grown through acquisition. But as the cost of acquiring local companies escalated, the telecommunications act opened a new avenue for growth.
In 1995 TDS Telecom began developing its out-of-territory plan; in third quarter 1999 TDS Metrocom and USLink reported revenues of $14.4 million.
Based on its success in Madison, Green Bay, and the Fox Valley, METROCOM now is competing for local customers in the 45,000+ line Oshkosh Wis. market. USLink, TDS Telecom’s lone long-distance provider (and considered for sale on occasion) bundled local, long-distance, and Internet service under its name and sold 10,000 local access lines in the first six months. Its churn rate is 1.5 percent, compared with the 2.5 percent common in the industry.
The out-of-territory-plan is now the competitive local exchange carrier (CLEC) business, and at its current pace, it could represent more than 20 percent of TDS Telecom’s business by 2004.
Tools of competition
When “Data” was included in TDS’s name, few anticipated the starring role it would play in the company. Or that we would become a world monitored, entertained, merchandised, and served through the microchip.
Both VBO and NMO rely on data technology that allows TDS Telecom to provide state-of-the-art service to a customer base whose demands are becoming more sophisticated and complex. The same technology allows us to maintain our local presence at cost-effective levels.
The BadgerNet Project, TDS Telecom’s multimillion-dollar contract monitoring the State of Wisconsin’s data network, would not be possible without a modern, centralized network services.
TDSNET, TDS Telecom’s internet service provider, began by serving 28 schools in rural Alabama in 1995. In 1998 its access performance was ranked it among the top 10 national providers by an industry publication. In July 1999 it billed its approximately 53,000 internet, wholesale internet, and WebTV customers $1 million. To date more than 80 percent of TDS Telecom access lines offer TDSNET.
StarNet, TDS Telecom’s intranet, links its offices and employees from Washington to Florida, from Maine to California with everyday news and during times of crisis. And its uses have only begun to be explored.
Since celebrating its 30th anniversary in 1999, TDS has weathered a torrent of change in the telecommunications environment. Its markets are threatened by wireless carriers, mobile substitution, cable companies, and new Voice over Internet Protocol (VoIP) entrants. In the rapidly changing regulatory environment, our ILEC operations face the loss of regulatory checks on rural competition. Meanwhile our CLEC business faces stiff competition as the Regional Bell Operating Companies pursue aggressive win-back campaigns.
TDS has remained strong and has grown during these turbulent times, staying true to a strategy of providing products and services that help customers lead more productive and fulfilling lives—and delivering those products and services within a framework of exceptional customer service. Since 1999, TDS has grown from 500,000 access lines to over 1 million total equivalent access lines.
Carefully managed growth for both ILEC and CLEC
Our CLEC business has been a key to our growth and one of the few success stories on the competitive local carrier side of the telecommunications industry. Since 1999, our CLEC has grown through carefully planned and managed expansion into mid-sized, metropolitan markets. In 1999, TDS Metrocom and USLink doubled in size to over 30,000 and 43,000 lines respectively. CLEC revenue grew 54% with the addition of 46,200 access lines in 2000. It grew an additional 40% in 2001 when TDS Metrocom launched five new markets serving 25 cities in Illinois and Michigan, increasing total lines 121%. By the end of 2003, CLEC lines represented 34 % of TDS’s total lines.
Since 1999, TDS Telecom, our ILEC side, has pursued a strategy of making acquisitions around existing geographic clusters. In 2000, the company acquired Southeast Telephone Company in southeastern Wisconsin, resulting in 5% growth in access lines for the ILEC business. In 2001, it acquired Chorus Communications Group, its largest acquisition to date, adding 43,000 access lines and 27,000 internet customers, as well as 300 new employees to the company. The assets adjoined existing operations in southern Wisconsin, strengthening TDS Telecom’s presence in the area.
In 2002, TDS Telecom acquired MCT of Contoocock, New Hampshire and Telecommunications Systems of New Hampshire (TSNH), again around its existing markets. MCT brought an additional 19,200 access lines on board in a rapidly growing area, while the TSNH acquisition added 7,800 access lines and 1,400 Internet customers.
Products and services that keep us ahead of the competition
Competition has been fierce during the last five years, as local telephone service, long distance, Internet, wireless, satellite TV, and cable TV all compete for the consumer’s communication dollar. In response to these threats, TDS has created a robust line of data products and services to sell in existing and new markets.
In August 2000, TDS Telecom launched TDS True Talk long distance.
TDS began offering DSL services in 2000, complementing a product line that included ISDN, dedicated circuits, and T1s. By 2002, total lines had grown to 163,000 lines, many of which were DSL. By 2003, DSL was available in 54 ILEC markets and 15 CLEC markets.
TDS continues to harness technical advancements and expand product offerings. In 2003, voice, data, and video services based on Voice over Internet Protocol (VoIP), Passive Optical Networks (PON), and Wi-Fi were in the planning stages. And in 2004, TDS began five PON and fiber-to-the-home (FTTH) trials that will begin by carrying voice and video. In 2005, TDS plans to add video, making it a Triple Play communications package through a single fiber-optic connection.
Working to shape public policy good for company and customers
The always evolving regulatory environment weighs heavy on the future success of ILEC and CLEC operations. According to the TDS, Inc., 1999 Annual Report, “the Telecommunications Act of 1996 … provide[s] significant opportunity for TDS Telecom.” .
Universal Service and intercarrier compensation programs, which together account for 40% of TDS’s ILEC regulated revenues, are undergoing changes from FCC and state commissions. The FCC and states are reexamining the method of collecting money for the Universal Service Fund (USF) and how it is paid out.
Public policy advocacy continues to be an important part of TDS’s strategy. For example, TDS will continue to work closely with state public service commissions, negotiating wholesale rates that are in the best interest of the company and its customers.
Creating internal operating efficiencies
In the future, TDS will continue to deliver best-in-market communications products backed by world-class customer service, while creating internal operating efficiencies. The recent consolidation of USLink and TDS Metrocom resulted in a single, more efficient branded entity.
Complying with regulations set forth in the 2002 Sarbanes-Oxley Act is requiring considerable resources. However, compliance has also helped improve processes and practices, while reinforcing our investors’ faith through full disclosure.
Every Point Counts… At Every Point of Contact
In 2004 TDS re-energized its brand with a new logo and brand promise of: At Every Point of Contact.
In 2008, TDS Telecom acquired State Long Distance Telcom, Ltd. in Elkhorn, Wisconsin and Mosinee Telephone Company in Wisconsin. The transactions include more than 15,000 residential and business line equivalents.
In 2009, TDS Telecom acquired Union Telephone Co in Farmington, NH. The transaction would include more than 8,500 access line equivalents, covering 150 square miles in rural eastern New Hampshire. TDS currently operates 7 phone companies in the state. Union Telephone Company currently provides telecommunications services to all or portions of the towns of: Alton, Barnstead, Center Barnstead, Farmington, Gilmanton, New Durham and Strafford, New Hampshire.
In August 2010, the USDA Rural Utilities Service (RUS) announced TDS Telecommunications Corp. (TDS®) has been approved for $114.5 million in broadband expansion projects. As part of the American Recovery and Reinvestment Act, TDS submitted 46 applications in the second round of broadband stimulus funding availability in March. Coupled with the Aug. 4, 2010 RUS announcement, TDS has now received approval for 41 of the projects totaling $121 million for broadband expansion in 19 states. TDS will receive $90.8 million in federal grants and provide $30.3 million of its own funds to complete the projects.
In August 2013, TDS acquired BajaBroadband. During its first 19 months, TDS invested nearly $11 million to deliver a better online experience to Baja customers.
OneNeck IT Solutions LLC, a wholly owned subsidiary of Telephone and Data Systems, employs nearly 550 people throughout the U.S. OneNeck offers IT solutions including cloud and hosting solutions, managed services, ERP application management and IT hardware and top tier data centers. OneNeck was acquired by TDS in October, 2013.
In May, 2014, TDS Telecom acquired BendBroadband in Bend, Ore. BendBroadband is a full-service communications company offering broadband, fiber connectivity, cable television and telephone services for commercial and residential customers in central Oregon.
TDS began the conversion of its cable markets from analog to digital. The conversation was complete at the end of 2016
LeRoy (Roy) T. Carlson founder and Chairman Emeritus of Telephone and Data Systems, Inc. [NYSE: TDS](TDS), passed away on May 23, 2016. Roy was 100 years old. Under Carlson’s visionary leadership, TDS became a leading telecommunications company with 6 million customers, 10,600 employees and revenues of more than $5 billion. It’s subsidiaries include U.S. Cellular, TDS Telecom, OneNeck IT Solutions, BendBroadband and Suttle-Straus. TDS Telecom is the seventh largest local exchange carrier in the United States.
Cable operations overview: TDS is the 25th largest cable company in the United States. Includes BendBroadband and TDS Broadband Service LLC, Fiber-rich 750/860 MHz & DOCSIS 3.0 active in BendBroadband footprint, More than 280,000 customer connections, Residential offerings: TV, broadband and voice, Business offerings: Metro Ethernet, PON, hosted PBX, carrier backhaul & transport, Includes Zolo Media which operates: KBNZ CBS affiliate, KOHD ABC affiliate, COTV11 and includes multiple video advertising & viewing options.
In November 2016, it was announced that TDS acquired InterLinx Communications and its subsidiary Tonaquint Networks in Southern Utah. The agreement includes more than 170 miles of fiber optic transport.
*Some information for this blog came from the book Roy Carlson: Inspirational Achiever Founder and Chairman of TDS by C. Thedore Herbert.