Telephone and Data Systems (TDS) Q3 2026 earnings review
TDS resumes big buybacks, but Telecom cuts its profit plan
Telephone and Data Systems is building fiber lines and buying back stock fast, yet its older telecom lines are shrinking even faster. Third-quarter Telecom operating profit before depreciation and one-offs fell 18% to $66 million as copper, cable and wholesale declines outweighed 76,000 new fiber addresses. Chief executive Walter Carlson dropped the bid for the rest of tower subsidiary Array, freeing the parent to spend over $520 million buying back nearly 15 million shares this year.
| TDS Telecom revenue | $247.3M -3.1% from a year ago (expansion fiber +22%, older lines -7.7%) |
|---|---|
| TDS Telecom Adjusted EBITDA | $65.9M -18.2% from a year ago |
| Shares repurchased in 2026 | ~15M shares over $520M returned; new $250M plan approved |
| FY26 Telecom profit outlook | Cut $20M capital spending raised $100M to ~$750M |
⚖️ Verdict: 🔴 Bearish
The story got worse because Telecom cut its full-year revenue and profit outlook for a second straight quarter while lifting capital spending by $100 million to $750 million. By our math, the prior plan needed at least $83 million of quarterly Telecom cash profit in the second half, and the unit delivered $66 million. On the bright side, cancelling the Array buyout removed a governance overhang and turned an idle repurchase authorization into actual share reductions.
The question now is whether fiber subscriber additions can outrun copper and cable losses before the heavy construction bill drains the cash pile. One view is that today's record address build converts into higher revenue in 2027; the other is that legacy declines and rising overhead keep eating the gains. Fourth-quarter Telecom cash profit, which by our math must jump to $90 million to hit the new plan, will tell.
🐂 Bull Case
Fiber Construction Accelerates and Converts Into Subscribers
Telephone and Data Systems (TDS), the US broadband and wireless tower operator, is building fiber-optic lines to replace its older copper and cable wires. “During the quarter, TDS Telecom expanded its marketable fiber service footprint by approximately 76,000 addresses and grew fiber net adds by approximately 17,000,” chief executive Walter Carlson said. That construction pace rose 81% from a year ago.
- New fiber addresses built: 76,000, up from 66,000 last quarter and 42,000 a year ago
- Residential fiber net additions: 16,700, up 49% from 11,200 a year ago
- Total residential broadband additions: 7,200, plus 4,700 added from the September acquisition of Granite State Communications
- Expansion fiber revenue: $48.3 million, up 22% from a year ago
What to watch: fourth-quarter fiber address deliveries against the 250,000 to 300,000 full-year target. After building 182,000 addresses in the first nine months by our math, the telecom unit needs at least 68,000 in the fourth quarter to reach the bottom of its goal.
Withdrawn Array Bid Frees Up $520 Million in Buybacks
In May, the parent company offered to buy the 18% of Array Digital Infrastructure — its publicly traded wireless tower subsidiary — that it did not already own. That pending bid legally barred TDS from buying back its own stock for two quarters and raised governance concerns about a controlling shareholder on both sides of a deal.
On September 1, the Chicago-based group dropped the Array buyout proposal and immediately resumed repurchases. Carlson noted that “following TDS' withdrawal of the offer to acquire the minority interest in Array, TDS was in the market, and has repurchased nearly 15 million shares in 2026, returning over $520 million to shareholders.” It bought 6 million shares in the third quarter at an average price of $36.65, bought nearly 9 million more after September 30, and approved a new $250 million repurchase plan.
What to watch: fourth-quarter diluted share count in the annual report. Retiring nearly 15 million shares — about 13% of the company — shrinks the share count far faster than the third-quarter average showed, because most of the buying happened in September and October.
🐻 Bear Case
Older Telecom Lines Shrink Faster Than Fiber Grows
TDS Telecom is adding fiber customers, but its older copper, cable, commercial and wholesale lines are shrinking much faster. Service revenue fell 3%, with “Residential fiber revenue growth of 14% more than offset by impacts of divestitures and continued legacy declines,” the company said. By our math, revenue outside the new fiber expansion markets fell 7.7% from a year ago to $199.0 million.
That drop hit profit hard because overhead grew while sales shrank. Selling, general and administrative expenses — sales and overhead costs — rose 3.2 percentage points of revenue to 34.2%, and operating costs rose 1.7 points to 41.7%. As a result, Telecom Adjusted EBITDA (profit before interest, taxes, depreciation and one-offs) fell 18.2% to $65.9 million, missing the $82.9 million to $92.9 million second-half quarterly pace the prior plan implied by our math.
Management cut its 2026 Telecom revenue and profit targets for a second straight quarter, while lifting capital spending by $100 million to about $750 million. In the third quarter alone, Telecom capital spending of $251.5 million exceeded the unit's entire $247.3 million of revenue.
What to watch: fourth-quarter Telecom Adjusted EBITDA. By our math, even the lowered full-year plan requires $89.9 million in the fourth quarter, a 37% jump from the third quarter that recent revenue trends do not support.
Array Tower Growth Slows as the T-Mobile Deal Laps
Array Digital Infrastructure leases space on 4,455 wireless towers after selling its cellular network to T-Mobile in August 2025. Supporters point to improving tower operations: Adjusted OIBDA — operating profit before depreciation and income from minority investments — nearly tripled from a year ago to $18.3 million as overhead fell 11%. Yet critics note that revenue growth is mostly a one-time step from the August 2025 T-Mobile lease agreement, which is now lapping.
With two of the three months in the quarter now comparing against a period after that deal closed, Array revenue growth slowed from 90% in the second quarter to 14.3% in the third. Array added just 10 net new tenant leases (colocations) from last quarter to reach 4,372, leaving its tenancy rate — average tenants per tower — flat at 0.98. Meanwhile, short-term interim site payments from T-Mobile continue to wind down.
What to watch: fourth-quarter Array site rental revenue. It will be the first full quarter lapping the T-Mobile contract, and by our math the unchanged full-year outlook points to fourth-quarter Array revenue falling 17% from a year ago.
Risks this quarter didn't answer
Several standing risks around the fiber build and the tower portfolio either worsened slightly or received no update in the earnings release.
- Fiber customer penetration by build year: withheld again despite a $100 million capital spending increase; any published cohort table would test whether the build earns its cost of capital.
- Broadband customer cancellations (churn) and satellite competition: monthly residential fiber churn ticked up to 1.3% from 1.2% last quarter (1.5% a year ago), and cable connections shrank by another 2,900; call remarks are needed to read on satellite rivals.
- Empty towers after T-Mobile finishes network consolidation: management previously estimated 1,000 to 1,700 towers will be left without a tenant by 2028; the release gave no update on lease-up or decommissioning.
- Unsold C-Band wireless spectrum: $1.59 billion of spectrum licenses remain on the balance sheet with no sale timeline announced.
👓 Other Themes
Spectrum Tax Bills Turn Array Cash Flow Negative
Array's nine-month Adjusted Free Cash Flow — operating cash flow plus partnership payouts minus maintenance capital spending — swung to negative $162.0 million from positive $6.6 million in the first half. That outflow happened because Array paid $274.3 million in income taxes during the first nine months, and “Substantially all of the cash paid for income taxes are related to the sale of various wireless spectrum licenses in 2026,” the company wrote. For the remaining smaller spectrum sales, Array “Received regulatory approval for remaining pending transactions in October, closings remain subject to FCC finality and other customary closing conditions.”
💲 Other KPIs
TDS holds $1.64 billion in cash against $678.0 million of total debt, leaving $957.4 million of net cash by our math — a $1.02 billion improvement from $62.7 million of net debt at year-end 2025. Cash fell by $558.6 million from June as the group paid spectrum tax bills, funded fiber construction and bought back shares.
Average monthly revenue per residential Telecom customer rose 1.9% from $65.66 a year ago and climbed from $66.50 last quarter. The metric has risen in four consecutive quarters as customers shift toward higher-speed fiber plans, partially cushioning the drop in legacy voice and copper lines.
Average diluted shares fell 3.2% from 118.8 million a year ago and dropped 1.1% from 116.3 million in the second quarter. Because TDS only resumed buying shares after dropping the Array offer on September 1, the full effect of the 15 million shares bought in 2026 will show up in the fourth quarter.
🔮 Guidance
Cut. The middle of the full-year range fell by $12.5 million to $1.0 billion, down 3.7% from 2025. By our math, that leaves $254.8 million for the fourth quarter, a 2.4% drop from a year ago vs a 3.1% drop in the third quarter. It is the second straight cut across four quarters: $0, -$22.5M, -$12.5M.
Cut. Management lowered the range by $20 million, putting the middle 9.2% below 2025. By our math, hitting the $300 million middle still requires $89.9 million in the fourth quarter — up 5.9% from a year ago and up 37% from the third quarter's $65.9 million. Moves across four quarters: $0, -$10M, -$20M.
Cut. The target for operating profit before depreciation and investment income dropped by $20 million, to a middle of $290 million (-9.1% from 2025). By our math, that leaves $86.5 million for the fourth quarter against $63.5 million earned in the third quarter. Moves over the last four quarters match Adjusted EBITDA: $0, -$10M, -$20M.
Raised. Planned capital spending jumped by $100 million from the middle of the prior range as fiber construction accelerated. By our math, after spending $556.6 million in the first nine months, the plan leaves $193.4 million for the fourth quarter — down from the third quarter's $251.5 million peak, but 25% above last year's fourth quarter. Moves: $0, +$75M, +$100M.
Unchanged. The tower unit still expects $210 million at the middle of the range, up 29% for the full year. By our math, after generating $160.0 million in the first nine months, that leaves $50.0 million for the fourth quarter — down 17% from a year ago as interim T-Mobile sites wind down.
Unchanged. Operating cash profit excluding minority partnership income stays at a $67.5 million middle, after raising it by $10 million last quarter. By our math, the plan leaves $16.3 million for the fourth quarter, slightly below the $18.3 million delivered in the third quarter.
Unchanged. Including $145 million of expected earnings from unconsolidated wireless partnerships and $15 million of interest income, the middle of the range remains $227.5 million (+17% from 2025). By our math, that leaves $45.1 million for the fourth quarter, down 13% from a year ago.
Unchanged. The tower group kept its spending plan at a $30 million middle for a fourth straight quarter. With only $16.5 million spent in the first nine months, the middle of the plan leaves $13.5 million for the fourth quarter, more than triple the $3.9 million spent in the third quarter.
❓ Key Questions
What bridges Telecom profit to the $90M fourth-quarter target?
Even after a $20 million cut, the full-year Telecom Adjusted EBITDA plan requires $89.9 million in the fourth quarter by our math, up from $65.9 million in the third quarter. Which cost lines fall to produce that $24 million single-quarter jump?
What are the customer penetration rates by fiber cohort?
Telecom raised its 2026 capital spending plan by another $100 million to $750 million, pushing nine-month consolidated free cash flow to negative $473 million. Without penetration rates on the 2023 and 2024 expansion builds, investors cannot verify the return on that capital.
How many new fiber customers switched from TDS copper?
Telecom added 16,700 residential fiber connections, but excluding the 4,700 connections acquired with Granite State, total residential broadband grew by only 7,200. How much of the fiber growth is existing copper and cable customers switching plans versus households won from competitors?
What drove Array's 10-colocation increase and what is same-store growth?
Array colocations rose by just 10 from last quarter to 4,372 and tenancy stayed flat at 0.98. How fast is site rental revenue growing excluding T-Mobile, and how much interim T-Mobile revenue rolled off in the third quarter?