Competition from cable companies is not keeping executives at regional operator U.S. Cellular up at night, but it’s something they’re watching.
During a virtual fireside chat on Thursday, Morgan Stanley analyst Simon Flannery asked U.S. Cellular SVP and CFO Doug Chambers about competition from cable in its markets. In the second quarter, Charter Communications added 325,000 wireless phone subscribers, a number that was higher than any of the individual wireless operators in terms of postpaid net adds.
Chambers said it’s important to remember that because of its footprint, U.S. Cellular competes with cable in about less than half of its markets. It comes up against Charter in about a third of its markets, with Comcast in 7-8% and with Altice, maybe 4%, he said.
“We don’t see cable everywhere. Where we do, they’re certainly competitive on the lower end,” with their per gigabyte plans, he said. “We’re watching cable. In our markets, Verizon and AT&T are still the most formidable competitors, but cable’s there,” and something they continue to watch.
T-Mobile has made a big commitment to the FCC in terms of coverage and it’s laid out an aggressive timetable for adding 2.5 GHz from Sprint to its sites.
To date, it’s been steady in some of U.S. Cellular’s areas and there hasn’t been a dramatic increase. However, “we certainly do expect it,” Chambers said. “We’re ready for it.”
Flannery noted that roaming was tough for a lot of carriers in the second quarter because people are not traveling during the pandemic. Asked about U.S. Cellular’s experience, Chambers said they believe there’s less roaming traffic due to more stay-at-home behavior related to COVID-19. In addition, T-Mobile is migrating the Sprint traffic to the T-Mobile network at a faster clip than U.S. Cellular had anticipated, and that’s having an impact on roaming revenue.
600 MHz + mmWave
As for its 5G rollout, U.S. Cellular is deploying the initial phase of its 5G network on its 600 MHz spectrum and launched its initial markets in Iowa and Wisconsin. Last month, it announced plans to expand 5G in select areas in 11 states including California, Maine, Maryland, New Hampshire, North Carolina, Oklahoma, Oregon, Texas, Virginia, Washington and West Virginia.
The company is starting its millimeter wave (mmWave) 5G deployments, with commercial availability planned for 2021, using the 24, 28 and 39 GHz bands. U.S. Cellular also qualified to bid in the current mid-band CBRS auction, which it can't talk about due to the FCC's quiet period restrictions.
“We’re starting millimeter wave in earnest in 2021,” Chambers said. Plans call for testing its fixed wireless mmWave product in three markets in 2021 to learn about adoption rates and understand who uses it.
Its mmWave deployments will be in much more select areas compared with the 600 MHz deployment. Once the mmWave is deployed from a mobility standpoint, it will look at where it can roll out fixed wireless to ride on top of that investment.
“Our initial plan is not to build out millimeter wave exclusively to support fixed wireless. It’s really going to ride on top of what we’re already building out for mobility,” he said.
It’s difficult to predict what’s going to happen with the next iPhone cycle during the pandemic but if Apple releases a 5G smartphone in the fourth quarter, there’s likely going be a lot of switching and adoption of new devices and U.S. Cellular wants to make sure it gets its fair share and more of the switching activity.
Overall, Chambers said there’s a lot of mid-tier 5G devices coming in the $300 to $800 range in the second half of 2020 so the barrier to adoption is no longer there in terms of affordability. “The device price is not a barrier,” he said.
U.S. Cellular CEO Ken Meyers recently retired, replaced by Laurent Therivel, who previously was CEO of AT&T Mexico. With Therivel at the helm, the No. 1 priority is getting strong growth at U.S. Cellular, both in terms of customers and revenues, and the second is increasing its return on capital in the context of continuing to have a strong network, according to LeRoy T. Carlson Jr., president and CEO of U.S. Cellular parent TDS.
Carlson said he was amazed how well the company’s employees and associates adapted to the work-from-home environment due to COVID-19 and he called out the IT departments in particular for being able to rapidly set up people to work from home with high security.
Connectivity is even more important now than when people were in the office and could just walk down the hall and talk to someone; both TDS’ wired and wireless businesses are benefiting from that, Carlson said.
Usage went up quite a bit in the second quarter, and on the U.S. Cellular side, more people see the value of unlimited plans.
“I think this has highlighted the importance and necessity of our industry, which is a good thing,” he said.