U.S. Cellular loses 71,000 subs in Q3, apologizes for billing system errors

U.S. Cellular (NYSE:USM) reported weaker financial and subscriber results for the third quarter and is also working to move beyond problems with its new billing system. While it is dealing with that, company is also rolling out new shared data plans and gearing up for the Nov. 8 launch of Apple's (NASDAQ:AAPL) iPhone 5s, 5c and 4S, and iPad Air, its first Apple products.

The carrier has recently been working with billing vendor Amdocs to fix problems in its new billing system. U.S. Cellular acknowledged the problems in early October, shortly after the Milwaukee Journal Sentinel reported that many U.S. Cellular customers were angry over receiving multiple bills in a short time with inaccurate balances or overcharges. U.S. Cellular first noted billing system problems in July, but at that time said the issue had been resolved.

"Regrettably, the billing system implementation impacted our ability to provide high-quality service to every customer for a period of time," U.S. Cellular CEO Kenneth Meyers said in a statement today in conjunction with the carrier's third quarter results. "However, we have made substantial progress in resolving the issues, and we expect the system to provide significant benefits over the long term."

Meyers added during the company's third-quarter earnings conference call that the company "expected a conversion of this size and complexity to have its challenges, but quite frankly, we underestimated them." He said the company doled out around $10 million in billing credits to customers during the period as a result of the billing system issues.

However, Meyers said the new system, which is now fully in place, will let the carrier serve more customers and lead to more efficient sales. He said it will also let the company introduce new services faster, and that the carrier's shared data plans could not have been launched without the new billing system. Meyers said it's too soon to comment on adoption of shared data plans, which the company started offering in mid-October.

Perhaps as a result of the snafu, the company said that Jay Ellison has rejoined U.S. Cellular to lead its sales and customer service operations. Carter Elenz, who had been the company's executive vice president of sales and customer service, is leaving the company effective today. Ellison retired from U.S. Cellular in 2009; he was a member of the leadership team for nearly 10 years, serving most recently as executive vice president and COO.

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

Smartphones: Smartphones represented 65.2 percent of all devices sold in the third quarter, down slightly from 66 percent in the second quarter but up from 53 percent in the year-ago period. Around 47 percent of U.S. Cellular's postpaid subscriber base has a smartphone, up from 45.5 percent in the second quarter and 38.6 percent in the year-ago quarter.

Meyers said not having the iPhone "has been major contributing factor" to higher churn, and that the company expects to see improvement in churn and gross additions with the launch of the device.

U.S. Cellular CMO David Kimbell said the company is "excited about the launch and aggressively working to drive awareness" through "strong promotional activity" in the hopes of winning back some customers who may have left the carrier because it lacked the iPhone. U.S. Cellular executives said there may be supply constraints for certain models but that the company is working with Apple to make sure it has enough supplies through the holiday shopping season.

LTE: U.S. Cellular said it is close to deploying LTE to nearly 90 percent of its subscribers, its year-end goal. The company also said it will have additional LTE deployments on the 850 MHz band to provide extra capacity "for future growth in data usage, enable potential future 4G LTE roaming, and support the sale of Apple products." 

Meyers said the recently formalized 700 MHz interoperability agreement will benefit U.S. Cellular customers, but that the carrier is deploying LTE on 850 MHz because many carriers use that frequency in devices and it could facilitate LTE roaming agreements in the future.

Fully 35 percent of the company's postpaid device base is now on LTE devices, and LTE devices on average produce 1.2 GB of data per month, compared to 960 MB per month for 3G-only devices, Meyers said.

Subscribers: In total, for all its markets, U.S. Cellular lost 71,000 customers in the third quarter, including 60,000 postpaid subscribers and 11,000 prepaid customers. While that's an improvement from the 127,000 subscribers the carrier lost in the second quarter, it's a drop from the third quarter of 2012, when the company gained a net of 19,000 retail customers (38,000 postpaid losses and 57,000 net prepaid additions).

The company ended the third quarter with around 4.87 million total customers.

Churn: U.S. Cellular's postpaid churn rate was 1.7 percent, flat from the year-ago period and down from 2 percent from the second quarter.  

ARPU: U.S. Cellular's postpaid average revenue per user was $54.64, up from $54.34 in the year-ago period and $54.18 in the second quarter.

Financials: Total revenue was $939.2 million, down 18 percent from $1.14 billion in the year-ago quarter. Service revenue clocked in at $862.3 million, down from $1.04 billion in the third quarter of 2012. The company reported a net loss of $9.9 million, a reversal from a profit of $35.5 million in the year-ago period.

For more:
- see this release

Special Report: Wireless in the third quarter of 2013

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