U.S. Cellular lost 26,000 net postpaid subscribers in the second quarter but saw service revenue growth driven by increases in average revenue per user (ARPU).
The wireless carrier also lost 2,000 prepaid customers in Q2, ending the period with a 4.9 million total connections. Postpaid handset churn was 0.97%.
The industry trend of customers holding on to expensive phones longer, extending upgrade cycles impacted U.S. Cellular, but the carrier faced additional headwinds in the second quarter.
Speaking on the company’s quarterly earnings call Friday, CEO Ken Meyers said prepaid sales were also hampered by handset availability as global issues required U.S. Cellular to change its supply chain. It took time for the company to qualify new vendors and restock its channels, according to Meyers, who noted that issue has been resolved.
The company also felt the impact of new entrant activity in Q2, which Meyers indicated was from a cable operator already in place in the market that was offering low-cost single-line plans. Comcast and Charter Communications have both started offering their own mobile offerings via MVNO deals and gained 181,000 and 208,000 customer lines, respectively, in the second quarter.
While Meyers acknowledged new subscriber figures were not at the level he’d like to see, he said the company expects activity to pick up in the second half of the year.
Despite subscriber losses, service revenues grew 2% to $662 million as postpaid ARPU increased to $45.90. The company attributed the growth to customers migrating to higher priced plans and purchasing additional services like device protection plans when they purchase more expensive handsets. At the end of June, 32% of U.S. Cellular’s postpaid customers were on its unlimited plan, compared to 20% a year prior. At the end of Q2, 47% of the carrier’s postpaid customer base took device protection plans, leaving additional room for growth, according to Meyers.
Inbound roaming revenues increased to $44 million, up 13% from the year prior driven by higher data volume.
“The team has positioned us well in the roaming arena by successfully migrating from 3G to 4G agreements and expanding the carriers we serve and improving our net roaming position,” Meyers said.
Equipment sales decreased by $17 million or about 7% year over year to $216 million. Net income for the quarter was $90 million.
U.S. Cellular is investing in a multi-year network upgrade, with plans to start commercially launching 5G service in its largest markets in 2020.
As the company readies for 5G, it continues to deploy VoLTE throughout the year. U.S. Cellular CTO Michael Irizarry said on the earnings call that VoLTE has been commercially deployed in Iowa, Wisconsin and the carrier’s Northwest markets. He noted that 1.2 million customers are now on VoLTE service and the company plans to roll out the technology in its New England and Mid-Atlantic markets during the third quarter.
When it comes to 5G, Irizarry said the network modernization project will use technologies including 4x4 MIMO, License Assisted Access (LAA), 256 QAM, and LTE-M to deliver LTE-Advanced features to customers.
The deployments include equipment that can support 5G in the future via a software upgrade. Network upgrades include replacing base stations with software upgradeable basebands, moving radios to the top of towers to improve coverage and deploying software upgrades to the core network.
U.S. Cellular announced in February that it selected Ericsson for 5G NR hardware and software.
According to Irizarry, the tower work needed for new antennas has started and the company is making “good progress” on upgrades to key components of the network core.
U.S. Cellular is also “working very hard” with major handset partners to ensure the company has 5G devices available when it launches 5G service, Irizarry said.
In terms of spectrum, executives said the carrier envisions using a mix of low-, mid- and high-band spectrum for 5G.
U.S. Cellular already holds low-band spectrum including 600 MHz, 700 MHz, AWS and PCS spectrum. Earlier this year, the carrier made a strong appearance at both FCC high-band millimeter wave spectrum auctions. U.S. Cellular spent $129.4 million on 408 spectrum licenses in the 28 GHz band and $126.5 million for 282 licenses in the 24 GHz band.
Executives noted that one difference in U.S Cellular’s mmWave strategy, compared to the top U.S. carriers, is that it will initially deploy the spectrum on macro towers rather than lamp-post level sites.
The carrier says its low- and high-band holdings combined provide at least 300 MHz of spectrum in markets that serve 97% of its customer base. Still, in opening remarks Meyers urged the FCC to bring as much mid-band spectrum to the market as quickly as possible within a framework that will enable “regional and smaller wireless carriers to continue meaningfully participate in the industry.”
Meyers said that U.S. Cellular continues to believe that owning its towers is critical to the company’s network strategy, but also a strategic asset that it would consider selling if “faced with a compelling need for cash.”
He doesn’t see a compelling enough scenario right now, but noted that had a sizable amount of attractive mid-band spectrum become available as a result of ongoing deals in the market, it would have gotten U.S. Cellular’s attention.
“Right now, as the team is out doing this modernization project, we’re all over those towers,” Meyers said. He noted that by not having to pay a fee every time or increase rents it has lowered the rate of cost increases on the network side.
“We know they’re valuable, we appreciate that fact,” he said. “But right now they [towers] remain valuable to our business in a different way.”