Analysts speculate UScellular spent $1.46 billion on C-band

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UScellular saw a 54% increase in data usage year over year. (Getty Images)

As UScellular reported earnings results Friday, analysts on the call speculated about disclosures that appear to indicate the carrier may have spent $1.46 billion for C-band spectrum.

Analysts on Friday’s fourth quarter earnings call asked about a footnote in UScellular’s investor presentation (PDF) that states: “Subsequent to December 31, 2020, UScellular committed to purchase wireless spectrum licenses for approximately $1,460 million inclusive of associated costs, subject to regulatory approval.”

The disclosure is also in UScelluar’s 10-K.

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When analysts asked if there is anything going on besides the C-band auction that might be included in the $1.46 billion figure, management said they were unable to talk about details and the company is subject to collusion rules.

RELATED: C-band assignment phase ends

The assignment phase for Auction 107 just wrapped up on Wednesday, meaning it’s still the quiet period and participants can’t discuss details under FCC rules. A public notice announcing C-band results and winners is likely next week. After certain deposits are made, the quiet period will end, potentially March 10.

The blockbuster auction for mid-band spectrum licenses in the C-band generated $81.2 billion after starting in December and is the only U.S. spectrum auction that’s taken place this year. Some analysts have estimated carriers like Verizon and AT&T spent more than $20 billion each, with Dish, T-Mobile and cable also expected to have bid double-digit billions for the licenses in the 3.7 GHz band.

ARPU grows in Q4

Alongside significantly less store traffic that negatively impacted gross adds, UScellular gained 11,000 net postpaid connections in Q4.

That includes 8,000 connected devices and 12,000 smartphones, while shedding 9,000 lower-value feature phone connections. UScellular lost 8,000 net prepaid subscribers.

Average revenue per user (ARPU) for a smartphone connection is $21 higher than for a feature phone, according to CFO Douglas Chambers. ARPU in Q4 grew 2% year over year to $47.51. In 2020 total smartphone additions were up 47,000 and UScellular ended the year with 3.5 million smartphone connections

Higher ARPU helped increase retail service revenues by $17 million in the quarter to $683 million.

Postpaid churn was up compared to the last few quarters, but down year over year in Q4 to 1.01%

T-Mobile/Sprint merger hits roaming revenue

After T-Mobile and Sprint merged last year, it’s had an impact on UScellular’s roaming revenues.

The carrier saw its inbound roaming revenue decline to $33 million in Q4 compared to $42 million in the same quarter of 2019. 

Chambers attributed lower data volumes to the decrease, with the Sprint/T-Mobile merger a main factor as Sprint roaming traffic migrated to T-Mobile’s network.  

UScellular expects continued pressure on in-bound roaming to impact 2021, and is projecting service revenues this year to be between $3.025-$3.125 billion.

When asked to quantify the Sprint roaming revenue risk, Chambers said quite a bit of traffic was transitioned in 2020 but acknowledged there’s still more to go.

Sprint currently comprises about 20% of UScellular’s roaming traffic, he noted.

“We don’t expect all of that to go away,” Chambers said. “Some is transitioning over to T-Mobile’s network, other will be subject to roaming agreements we have with them as a carrier. We are projecting roaming revenue in total to go down 2020 to 2021 and that is one of the larger components of that.”

Store traffic down, digital experience a focus

Store traffic was down by almost 30% in Q4, and in citing goals for 2021 including driving growth better returns, UScellular CEO LT Therivel mentioned enhancing digital capabilities.

As for how retail and digital channels will look coming out of Covid to drive sales, Therivel said: “I think the move to digital that has been driven by the pandemic is lasting.”  

RELATED: UScellular expects to nab market share in 2021

For those who would claim managing phone bills and accounts digitally is not something customers want, he would “throw that opinion in the trash.”

“I don’t think that’s going to vary by demographic,” Therivel said, meaning not just young or urban users desiring digital channels.

Switching is one thing he expects to continue happening in physical stores, emphasizing that physical distribution isn’t going away but “I think the makeup of our stores is going to change over time.”

That includes smaller stores, and no more massive footprints with deep experiential focuses.

“The digital focus has to focus on customer lifecycle management,” he said, noting incentives need to align with and be comfortable that customers can walk into a store to switch from a competitor, but not return to the physical retail location again.

“We’re seeing that, so we’ve seen meaningful increases both in terms of gross adds as well as total percentage of transactions being done digitally,” Therivel said, adding the percentage of those transactions is still below where he thinks it needs to be and suggesting UScellular’s online or app experience isn’t yet top notch.

RELATED: Perfect storm of changes impacts wireless retail — Moore

But if UScellular improves on that and handling the customer lifecycle digitally, he sees a significant number of transactions moving to online channels, also bringing the chance to lower costs.

“Along with that you can start to expect to see cost opportunities on the care side of our business that we can bring down and start to optimize our store footprint to take costs out of that side of the business, without necessarily bringing down total points of distribution,” Therivel said.  

Other carriers like Verizon have been making changes to retail strategies. 

Other earnings tidbits

UScellular saw a 54% increase in data usage year over year as the pandemic put significantly more demand on the network.  While handling increased data usage, the company kept systems operations expenses to a 3% increase year over year.

  • Completed its VoLTE rollout in the Q4, with 5G at 24% of cell sites. Those cell sites handle 50% of the carrier’s overall traffic.
  • 5G will be available in at least a portion of every single UScellular market by the end of the first quarter 2021.
  • Will begin millimeter wave deployments in 2021 to offer fixed wireless, starting with three test markets.

“That will give us some valuable learnings as we look to roll out this high-speed product to additional markets in our footprint,” Therivel said in prepared remarks.

RELATED: U.S. Cellular, Ericsson, Qualcomm stretch mmWave’s reach

  • Total operating revenues of $1.073 billion in Q4
  • Other service revenues were $60 million, including 9% year over year growth in tower rental revenue. UScellular owns 4,271 towers, representing 63% of cell sites and reiterated the value in owning those assets.
  • Equipment revenues decreased $8 million year over year to $297 million.
  • Adjusted EBTIDA in the fourth quarter was flat year over year and was up 5% for the full year to $1.063 billion
  • The carrier expects capital spending between $775 million and $875 million, a decrease from the $940 million in 2020.  That’s partly because UScellular was able to pull some of its network spending planned for 2021 into 2020, and it finished the VoLTE rollout.
  • More than 50% of capex is expected to be for 5G.