U.S. Cellular (NYSE:USM) capped 2014 with a strong performance in the fourth quarter. The company managed to grow its postpaid customer base in 2014, the first time it has been able to do so since 2009.
U.S. Cellular CEO Ken Meyers attributed the company's improved performance in the second half of last year to factors including a stronger device portfolio, improved customer service, the introduction of equipment installment plans (EIP), and expanded LTE coverage.
In 2015, the company is expecting higher revenues and adjusted EBITDA for the year than it had in 2014, but Meyers warned that the competitive environment this year will likely remain unpredictable after an "unprecedented" level of pricing moves the company's competitors made last year. Meyers said that U.S. Cellular aims to keep its pricing "somewhat below" Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T), the company's two main competitors. Yet he said that he "can't predict the moves we may need to make" to respond to developments in the market.
Indeed, one move the company did just make is to cut pricing on its Shared Connect shared data plans. The company announced the following changes:
- 1 GB plan reduced by $10, from $40 down to $30 (it was two lines for $80, and is now two lines for $70)
- 3 GB plan reduced by $10, from $60 down to $50 (it was two lines for $100, and is now two lines for $90)
- 6 GB plan reduced by $20, from $80 down to $60 (it was two lines for $120, and is now two lines for $100)
- 20 GB plan reduced by $10, from $150 down to $140 (it was two lines for $170, and is now two lines for $160)
Customers on 6 GB plans or less can add a line for an additional $20 per month. Further, the company also added an 8 GB plan for $80 per month, and extended the $30 connection charge discount to it, so customers can add devices for $10 per month. That gives users two lines for $100 or four lines for $120, $25 less than Verizon. U.S. Cellular is also continuing to pay off customers' old contracts, up to $350 per line, when they switch to a Shared Connect plan and choose the carrier's EIP option.
In terms of other major corporate developments, Meyers said that the carrier is still looking to secure LTE roaming agreements. He said technical trials are complete and that U.S. Cellular is currently negotiating commercial terms. However, he said the AWS-3 spectrum auction and a fight at the FCC over data roaming rules have prolonged the process. "I expect to see progress on this front or we'll explore other options," Meyers said.
Here is a breakdown of U.S. Cellular's key quarterly metrics:
Subscribers: U.S. Cellular added 98,000 postpaid customers in the fourth quarter of 2014, a major improvement from the 71,000 postpaid customers the company lost in the year-ago period, when it was dealing with fallout from moving to a new billing system that had caused errors on customers' bills. However, the company's performance was also better than the 52,000 postpaid net adds the company had in the third quarter of 2014. U.S. Cellular lost 2,000 net prepaid customers in the fourth quarter, the same as in the third quarter but an improvement from a loss of 26,000 prepaid customers the company lost in the year-ago period.
Although U.S. Cellular added a net of only 31,000 postpaid customers and 13,000 total wireless customers (postpaid and prepaid) in 2014, it was the company's best full-year postpaid performance since 2009. The company ended 2014 with 4.76 million total customers.
LTE and spectrum: Meyers said that the company's LTE network now covers 94 percent of its customer base and 86 percent of its cell sites. Fully 61 percent of the company's postpaid customers have an LTE-capable device and 78 percent of the company's data traffic runs on its LTE network.
U.S. Cellular was the fifth-largest bidder in the AWS-3 auction at $338.3 million in gross bids. Meyers said it was still "premature" to talk about the carrier's plans for the spectrum it won, but said that the company secured 5x5 MHz blocks of spectrum in more than 90 percent of its operating markets. He said that when with combined with its existing holdings in those markets via carrier aggregation, the company is in a "pretty good position" in terms of spectrum. He said the AWS-3 spectrum will help the company in some markets in which it is facing capacity constraints. However, Meyers acknowledged it will be "at least a year" before commercial equipment in the AWS-3 band comes to market.
Smartphones: The company said smartphone sales made up 86.5 percent of total handset sales in the quarter, up from 80.8 percent in the third quarter and 84.5 percent in the year-ago period. The company said 59.8 percent of its postpaid customer base has a smartphone, up from 57.9 percent in the third quarter and 50.8 percent in the year-ago quarter.
Meyers said 37 percent of postpaid devices sold in the fourth quarter were on EIP plans, flat from the third quarter. He said that EIP sales were "muted to some degree" by higher tablet sales in the fourth quarter.
Churn: U.S. Cellular posted postpaid churn of 1.6 percent, flat form the third quarter and down from 1.9 percent in the year-ago quarter.
ARPU: The carrier said average revenue per user was $56.51, up slightly from the third quarter and flat from the year-ago period. Average revenue per account was $136.13, up from $132.99 in the third quarter and $121.21 in the year-ago quarter. Meyers said 47 percent of its postpaid customers are now on shared data plans, up from 35 percent at the end of third quarter and just 5.5 percent at the end of 2013 (the company launched the plans in October 2013).
Financials: The company reported total revenue of $1 billion in the quarter, up 12 percent form $902 million in the fourth quarter of 2013. The company had an adjusted EBITDA of $99 million, compared to a loss of $31 million a year ago.
Special Report: Wireless in the fourth quarter of 2014
U.S. Cellular will begin VoLTE user trials in a few markets this year
U.S. Cellular agrees to sell non-core towers for $159M
U.S. Cellular: OnLook can compete with AT&T's Digital Life in home automation, security
U.S. Cellular testing VoLTE, will launch 'at some point in the future'
U.S. Cellular to launch small LTE roaming deal soon, is negotiating larger one