U.S. Cellular shifts into ‘different, but stable’ mode

U.S. Cellular D-Link router for fixed wireless (U.S. Cellular)
U.S. Cellular saw high demand for hotspots and routers in the first quarter. (U.S. Cellular)

U.S. Cellular's first-quarter results were solid in most every regard and the company sees no major disruption to its network investments.

That’s the message from President and CEO Ken Meyers, who told investors during Friday’s earnings call that after a period of massive transition in late March, “I would characterize April as a period of moving towards stable. Different, but stable.”  

The supply chain for handsets is operating smoothly, with inventory spread out over multiple warehouses to minimize risks. However, he said the company saw a surge in demand for hotspots and routers just as suppliers were starting to move out of 4G and into 5G devices. Supply there is expected to be tight at least through the next quarter.

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Total postpaid handset net losses for U.S. Cellular increased in the first quarter of this year when compared to the same period last year – 20,000 net losses this year compared with 14,000 last year. However, when factoring in an increase in connected devices, the total net losses for this year’s first quarter was 26,000 compared with last year’s 32,000.

Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $71 million and $0.81, respectively, for the first quarter compared with $54 million and $0.62, respectively, in the same period one year ago.

Stay-at-home ramifications

To respond to the stay-at-home orders in place throughout its footprint, U.S. Cellular moved work that can be done remotely to work-from-home environments. About 80% of customer service work is now done in a work-from-home model to ensure the employees in the actual call centers have enough room to practice social distancing.

RELATED: U.S. Cellular gets access to more spectrum for COVID-19 response

The company signed the FCC’s Keep Americans Connected pledge, so it’s not going to disconnect customers or charge late fees for those who are impacted by the crisis. It expects to incur a higher than normal amount of bad debt expense and recorded an incremental charge of $9 million during the quarter. Bad debt expense is one of its major watch points for future quarters, according to the company.

U.S. Cellular’s network has been able to handle the shift in traffic from urban areas to more residential sites as it was built to handle peak traffic. “Our network has been able to handle the extra demand,” Meyers said.  

RELATED: U.S. Cellular CEO downplays immediate 5G impact on consumers

The FCC’s CBRS spectrum auction was delayed about a month and it’s possible the C-band auction could slip into next year, he said, but U.S. Cellular feels good about its inventory of millimeter wave spectrum to complement its 600 MHz deployment of 5G. The company has launched commercial 5G services in parts of Iowa and Wisconsin and will continue to launch in additional areas throughout 2020.

As for the full-year impact of COVID-19, U.S. Cellular is assuming its markets will come out of lockdown toward the end of the second quarter, with some relaxation of social distancing in the third quarter and a return to a more normal state by the end of the third quarter. There will be an impact from waiving service fees and a drop in equipment sales, including accessory sales, as a result of a drop in-store traffic. Retail store traffic is running about 50% of pre-COVID levels.

FWA opportunity

Asked about U.S. Cellular’s interest in accelerating its ability to offer a fixed wireless access product, Meyers said the current crisis is not affecting that.

“We’re interested, excited and optimistic about fixed wireless from the outset, well before this,” he said.

The delays in terms of being able to recognize the full capability of FWA hasn’t been network related but more about the customer premise equipment (CPE) – getting the equipment that will use all the advantages of it. Part of that technology is still evolving, and he said U.S. Cellular is driving at the right pace given what it believes the fixed wireless opportunity looks like.

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