U.S. Cellular aims to strike LTE roaming deal by year-end

U.S. Cellular (NYSE:USM) aims to have an LTE roaming agreement in place by the end of 2014, according to CEO Ken Meyers. Meanwhile, although the carrier continued to lose customers in the second quarter, it dramatically cut its churn from the first quarter.

"We don't have an LTE roaming agreement in place yet," Meyers said on the carrier's second-quarter earnings conference call. "There is a lot of complexity into getting roaming with LTE working."

Meyers said U.S. Cellular has been conducting LTE roaming testing with larger carriers but he declined to say which ones. He said he is "hopeful" U.S. Cellular will have an LTE roaming deal "by the end of the year, which has kind of been my goal for the last six months, but we don't have one yet."

U.S. Cellular has said more than 93 percent of its customers will have access to LTE by the end of this year. The carrier is working to cover parts of Kansas, Missouri, Nebraska, Oklahoma and North Carolina with LTE, and to expand LTE coverage in areas in Iowa, Illinois, Maine, South Carolina, Tennessee, Texas, Virginia and Wisconsin.

LTE roaming agreements are becoming more common but are still not widespread. Sprint (NYSE: S) in June announcement agreements with a dozen rural operators that include reciprocal LTE roaming. The 12 agreements, which included a previously announced deal with nTelos Wireless, cover about 34 million POPs in 23 states. Sprint also inked deals with SouthernLINC Wireless, C Spire Wireless, Nex-Tech Wireless, Flat Wireless, SI Wireless, which does business as MobileNation, Inland Cellular, Illinois Valley Cellular, Carolina West Wireless, James Valley Telecommunications, Phoenix Wireless and VTel Wireless.

Under Verizon Wireless' (NYSE: VZ)  LTE in Rural America  program, rural carriers lease Verizon's 700 MHz Upper C Block spectrum and build and operate their own LTE radio networks. The rural carriers also have roaming access onto Verizon's national LTE network. Verizon currently has 21 partners in the program and 18 carriers have launched service, according to Verizon spokeswoman Robin Nicol.

Interestingly, Meyers said he also expects U.S. Cellular to participate in the FCC's forthcoming auction of AWS-3 spectrum, which starts Nov. 13. " I expect we will be there," he said. "We have been in most auctions in the past." He added that U.S. Cellular wants to "ensure that we have adequate spectrum to provide [customers] both the speed and capacity that we hope they need going forward with this explosive data growth."

Here is a breakdown of U.S. Cellular's key quarterly metrics:

Subscribers: U.S. Cellular lost 30,000 net retail subscribers in the second quarter, compared to 45,000 net retail subscriber losses in the year-ago quarter and 80,000 in the first quarter.

The carrier reported postpaid net losses of 26,000, down substantially from 120,000 in the year-ago period and down from 93,000 it lost in the first quarter, when it was still dealing with billing system errors that plagued it during the second half of 2013.

U.S. Cellular also lost 4,000 prepaid customers, compared to 8,000 prepaid subscriber gains in the year-ago period and 13,000 prepaid gains in the first quarter.

Smartphones: U.S. Cellular said 55 percent of its postpaid customers now have a smartphone, up from 53 percent in the first quarter and 45.5 percent in the year-ago period. The carrier said smartphone sales made up 72.6 percent of its total device sales, down slightly from 73 percent in the first quarter but up from 66.1 percent in the year-ago quarter.

Most notably, U.S. Cellular said that its equipment installment plans, which it introduced in April, have been "well received" and represented 14 percent of equipment sales in the quarter. U.S. Cellular expects that to grow to 25 percent in the second half of the year.

Under the plans, which the carrier calls Retail Installment Contracts, customers can get smartphones for no down payment subject to credit approval. They then pay off devices over the course of 24 monthly installments and can trade in their smartphones after 12 months for a new one (a new Retail Installment Contract is required at that point). Further, customers on the carrier's Shared Connect shared data plans of 8 GB or less who choose device financing receive a $20 discount on their $40 per month smartphone connection charge. Those on plans of 10 GB or higher receive a $30 discount.

The company said 22 percent of its postpaid customers are on shared data plans.

Churn: U.S. Cellular said that its postpaid churn rate was 1.7 percent, up from 1.6 percent a year ago but down considerably from 2.3 percent in the first quarter. Meyers said the carrier has the "potential to continue to improve churn as we're actively looking to do that."

The company said it reduced churn through stabilization of its billing system and restoring" high levels of customer service," as well as by offering devices including Apple (NASDAQ: AAPL) products.

ARPU: The company said postpaid average revenue per user was $56.82 in the second quarter, down from $57.59 in the first quarter but up from $54.18 in the year-ago period.

Financials: The carrier's total operating revenue fell 4 percent year-over-year to $957.8 million. Its service revenues clocked in at $843.5 million, down from $867.3 million a year ago. However, equipment revenues grew as customers adopted installment plans, with revenues from equipment growing to $114.3 million from $83.6 million a year ago.

U.S. Cellular reported a loss of $18.8 million compared with a year-ago profit of $143.4 million, when it benefited from spectrum sales.

For more:
- see this release
- see this U.S. Cellular presentation (PDF)
- see this WSJ article (sub. req.)

Special Report: Wireless in the second quarter of 2014

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