U.S. Cellular loses 97,000 subs in Q4, notes uncertainty for 2014

U.S. Cellular (NYSE:USM) continued to bleed subscribers in the fourth quarter and also said it would be unable to predict its performance in 2014 at this time. The company cited a number of factors in holding back on providing guidance, including continued churn related to issues with its new billing system.

The regional carrier said it is "not providing guidance for 2014 revenues and profitability at this time due to a number of factors, which involve significant uncertainty and affect the company's ability to estimate future results with reasonable confidence."

Additionally, its ability to forecast has been impacted by "continuing elevated churn due, at least in part, to issues arising from the company's billing system implementation in the second half of 2013. Although the company expects churn to improve over the next several months, the extent and timing of the improvement is uncertain."

In January, U.S. Cellular disclosed that it had issued $50 million worth of what it calls "reward points" to its customer base to make up for the problems. The reward points are basically customer credits that can be redeemed for free handsets and accessories, and the company said their issuance would impact the carrier's fourth-quarter profitability and would sit on its balance sheet as a liability.  

Throughout last fall some U.S. Cellular customers experienced billing issues that led to disconnected phones and unexplained charges as a result of the carrier's billing system transition. Due to billing snafus, many U.S. Cellular customers were angry over receiving multiple bills in a short time with inaccurate balances or overcharges.

The problems were first reported in July 2013. The company has been working with billing vendor Amdocs, which implemented the system, to fix the problems.

Another factor that led U.S. Cellular not to issue 2014 guidance was "the unprecedented number of actions related to pricing of service plans and devices, including device financing, announced by competitors in recent weeks, for which the company is evaluating and determining its response." There has been a great deal of ferment in pricing in the market the last several months.

T-Mobile US (NYSE:TMUS) incited the current price war last year with its move to eliminate device subsidies and thus lower the prices of its service plans. This year T-Mobile announced it will pay off customers' early termination fees if they switch to T-Mobile and trade in their devices.

In response, AT&T in December launched its Mobile Share Value plans, which lowered prices for customers who join the carrier's Next handset upgrade program as well as those who bring their own phone, who buy a phone at full price, or who are no longer under contract. AT&T also cut prices on its higher-end Mobile Share shared data plans.

Additionally, Sprint (NYSE:S) last month introduced cheaper "Framily" plans and recently lowered pricing on its Boost Mobile prepaid service as part of a promotion. Under Framily, Sprint customers pay $55 per month per line for unlimited talk, text and 1 GB of data. For each new Sprint customer joining a Framily group, the cost per person will drop $5 a month up to a maximum monthly discount of $30 per line. A group of at least seven people will get unlimited talk, text and 1GB of data for $25 per month per line, excluding taxes and surcharges. In addition, Framily members can each pay $20 per month per line to buy unlimited data plus get a new phone every year, or they can add 1 GB or 3 GB per month to their plan.

Earlier this month Verizon Wireless (NYSE:VZ) updated its shared data plans, changing the name of the plans from "Share Everything" to "More Everything" and increasing the data allotments for some plans. The carrier is also giving a discount to customers who use its "Edge" handset upgrade program.

For its part, in late January U.S. Cellular launched a new no-contract promotional plan that includes unlimited voice, messaging and data for only $50 per month. However, U.S. Cellular will start throttling data speeds after users consume the first 500 MB, notes PC Magazine.

"Billing system issues affected churn and overall financial performance for the fourth quarter.  However, we took important strategic actions in 2013 that position U.S. Cellular to compete more effectively," U.S. Cellular CEO Kenneth Meyers said in a statement. "We divested underperforming markets to focus on markets where we're stronger, we converted to a new billing and operational support system to enable more effective service and product delivery, and we introduced Apple products and shared data plans to monetize the continued growth in data usage on the 4G LTE network."

The company said it now has LTE coverage for 90 percent of its customer base.

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

Smartphones: Smartphones represented 79.6 percent of all devices sold in the fourth quarter, compared to 65.2 percent of all devices sold in the third quarter, and 62.9 percent in the year-ago period. U.S. Cellular said its postpaid smartphone penetration rate now has crossed the 50 percent mark. Around 50.8 percent of U.S. Cellular's postpaid subscriber base has a smartphone, up from 47.1 percent in the third quarter and 40.8 percent in the year-ago period.

Subscribers: In total, for all its markets, U.S. Cellular lost 71,000 postpaid customers and 26,000 prepaid subscribers in the fourth quarter, for total net losses of 97,000 customers. The company has been unable to break its string of postpaid subscriber losses that stretches back years now.

The company ended the fourth quarter with around 4.77 million total customers.

Churn: U.S. Cellular's postpaid churn rate was 1.9 percent in the fourth quarter, up from 1.7 percent in the third quarter, and 1.8 percent in the year-ago quarter.

ARPU: U.S. Cellular's postpaid average revenue per user was $53.53 in the fourth quarter, down from $54.64 in the third quarter and $54.56 in the year-ago period.

Financials: Total revenue was $902.7 million in the fourth quarter, down 19 percent from $1.11 billion in the year-ago period. U.S. Cellular reported a net income of $1.59 million in the quarter, compared to a net loss of $39.6 million in the year-ago period.

For more:
- see this release

Special Report: Wireless in the fourth quarter of 2013

Related Articles:
U.S. Cellular's $50M payoff to subscribers over billing errors will impact Q4 results
U.S. Cellular still working with Amdocs through billing system issues
U.S. Cellular says new billing system was necessary for iPhone launch
U.S. Cellular loses 71,000 subs in Q3, apologizes for billing system errors
U.S. Cellular launches shared data plans, weeks later than expected
U.S. Cellular, Amdocs struggle to fix billing system glitches