U.S. Cellular posts 67K net prepaid adds in mixed Q3

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Shares of U.S. Cellular rose slightly after the carrier posted mixed third-quarter results that included 67,000 net postpaid additions.

The Chicago-based operator reported $17 million in net income and a profit of 20 cents per share, shy of the average forecast of 23 cents per by four analysts surveyed by Zacks Investment Research, according to the Associated Press. But the company posted revenue of $1.01 billion, topping analysts’ estimates in the range of $985 million.

"U.S. Cellular stayed focused on achieving its long-term objectives throughout the quarter, despite an extremely competitive climate.  While the year over year comparison of financial results is impacted by a couple of items, when I look past those items, I am pleased with the Company's financial performance," CEO Ken Meyers said in a press release.  "We continue to differentiate ourselves through an unwavering commitment to an exceptional customer experience, including a high-quality network and outstanding customer service.”

Shares of U.S. Cellular had declined 16 percent since the beginning of the year, but the stock was up roughly 2 percent by mid-day Friday.

Interestingly, U.S. Cellular’s business was buoyed during the quarter by prepaid sales. The operator posted 6,000 overall net postpaid losses during the quarter, including 7,000 postpaid phone losses, due in part to limited stocks of the iPhone 7 and Samsung’s recall of the Galaxy Note 7.

But it added 67,000 net prepaid users, bringing its total prepaid user base to 480,000. And while its prepaid ARPU of $34.39 during the quarter was significantly lower than its postpaid ARPU of $47.08, the gap between the two has closed dramatically over the last year. Postpaid ARPU during the same period in 2015 was $58.12, for instance, while prepaid ARPU was $35.64.

“A bigger question I’m looking at now is how much of this is a shift in how people are buying now,” Meyers said during a conference call with financial analysts. “We keep calling this prepaid, but in fact if you go back to the early days, prepaid was a poor product to a segment of the consumer population that people didn’t necessarily want – it was higher priced, in effect, (but) not full-featured. What you’re seeing now is it’s not so much the old prepaid as much as it is something that has all the features of a postpaid offering but just packaged differently.”

Like its bigger rivals, U.S. Cellular is increasingly focusing on those higher-end prepaid users, roiling a market that was once all but ignored by tier-one operators. T-Mobile’s MetroPCS and AT&T’s Cricket have been particularly effective carrier brands in the segment, and Virgin hopes to reclaim some lost ground when it relaunches its Virgin Mobile service sometime next year. And Verizon saw its prepaid base grow by 83,000 in the third quarter after it changed its pricing plans to better address a market it had long dismissed for fear of cannibalizing its postpaid audience.