U.S. Cellular increases smartphone sales, but still loses subs in Q2

U.S. Cellular continued in the second quarter its recent trend of reporting growing smartphone penetration and average revenue per user while posting falling subscriber numbers. However, the company recently launched a major advertising push to highlight its offerings and customer service advantages, an effort CEO Mary Dillon believes will help attract customers.

Dillon said the carrier will work to improve its subscriber results by pushing "aggressive strategies to offer high-demand devices, expand our distribution options, and further differentiate U.S. Cellular's superior customer service and benefits."

On the company's earnings conference call, Dillon said that postpaid churn increased in the quarter due to expanded distribution of Apple's (NASDAQ:AAPL) iPhone and promotions from other carriers through big box retailers. Dillon said the company remains open to offering the iPhone in the future "if the terms are mutually beneficial." U.S. Cellular passed on selling the iPhone last year because the economics of the deal did not work out.

The company's newly launched marketing campaign, dubbed "Hello Better," takes on the Tier 1 carriers in a series of advertisements, highlighting how its customer service agents are listening to customers' frustrations with their existing carriers. Dillon said the company will be using "a full range of traditional, social, retail and grassroots tools to reach out to customers who are unhappy with their current providers, and show them there's a better option with U.S. Cellular."

Here is a breakdown of the company's key quarterly metrics:

Smartphones: U.S. Cellular said 410,000, or 51.9 percent, of the devices it sold in the quarter were smartphones, up from 39.6 percent in the year-ago period but down slightly from 54.1 percent in the first quarter of 2012. The carrier also said that smartphone penetration increased to 36.8 percent of all postpaid customers, up from 34.4 percent in the first quarter and 23.1 percent in the year-ago period. The company said LTE smartphones made up 17 percent of all smartphones sold in the quarter--Samsung supplies all of U.S. Cellular's LTE devices. U.S. Cellular recently began selling the LTE-capable Samsung Galaxy S III, its fourth LTE device. Dillon said the carrier will add three to four more LTE devices from "multiple vendors" by year-end.

LTE: The company's LTE network, running on its 700 MHz Lower A Block spectrum, now covers 30 percent of its customers; U.S. Cellular expects to reach 58 percent of customers with LTE by year end. U.S. Cellular currently has around 5.8 million total customers and covers 92.7 million total POPs with its total network footprint. Carrier executives said customers have responded positively to its LTE offering, and the carrier is continually evaluating how best to proceed with the rollout in the most efficient way possible. The company is also selling LTE devices in markets that have not yet received LTE so that customers can use the devices as soon as LTE service arrives.

Subscribers: The company reported net retail subscriber losses of 28,000 in the quarter, a result of 48,000 net postpaid customer losses offset by 20,000 net prepaid customer additions. Dillon said that while the postpaid numbers were disappointing, the positive prepaid results reflect the success the company has had selling its U Prepaid service through around 400 Walmart stores since mid-May. "We will continue to find new ways to optimize our distribution and be where our customers want to shop," she said. Fully 3.6 million, or 68 percent, of U.S. Cellular's postpaid customers are now on its Belief Plans.

Churn: U.S. Cellular's postpaid churn rate was 1.6 percent, unchanged from the first quarter and up slightly from 1.4 percent in the year-ago quarter.

ARPU: The carrier's total average revenue per user was up both sequentially and year-over-year, rising to $59.05, up from $58.21 in the first quarter and $55.69 in the year-ago period. Postpaid ARPU was also up, to $54.42, rising from $54 in the first quarter and $51.84 in the year-ago period.

Financials: The Tier 2 carrier reported that net income fell to $52.7 million from $74.9 million in the year-ago period. Total operating revenue increased 3 percent year-over-year to $1.1 billion, and service revenue increased by the same amount to around $1.03 billion.

For more:
- see this release

Special Report: Wireless in the second quarter of 2012

Related Articles:
U.S. Cellular launches 'Hello Better' ad campaign focused on customer service
U.S. Cellular restructures management team
U.S. Cellular overhauls voice, data pricing plans, promises LTE expansion
U.S. Cellular blames iPhone for hike in churn, preps for LTE launch in March
U.S. Cellular announces LTE hotspot, details rollout plans

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