U.S. Cellular's $50M payoff to subscribers over billing errors will impact Q4 results

U.S. Cellular (NYSE:USM), still reeling from a troublesome billing conversion, has 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 their issuance will impact the carrier's fourth-quarter profitability and will sit on its balance sheet as a liability.  

"Quite frankly, we did not meet our own standards in the billing conversion that we've gone through," said Kenneth Meyers, U.S. Cellular president and CEO. He noted that integrating 15 years' worth of data into the new Amdocs system "wound up taking longer than we'd like."

Meyers, who made his comments Tuesday during the Citi Internet Media & Telecommunications Conference in Las Vegas, said the system is now running and producing bills. "But as you catch up on your billing--you literally stop for awhile--you create customer confusion," he noted.

U.S. Cellular CMO Dave Kimbell said last month that the the carrier would distribute "5,000 Reward points to account holders because of the challenges they've faced with the roll-out of our new billing system," but he did not divulge the extent of the impact to U.S. Cellular's financials at that time.

Meyers previously said the billing system upgrade was necessary for the carrier to begin offering shared shared data and subsequently launch Apple's (NASDAQ:AAPL) iPhone 5s, 5c and 4S as well as the iPad Air to its customer base.

At the Citi conference, Meyers said sales of the iPhone, which it launched during 2013's fourth quarter, have been "heavier on the renewal side than the gross adds side," which he said was expected given in part that there was pent-up demand from U.S. Cellular's existing customers.

U.S. Cellular has been working to broaden its distribution and initiated the process some 18 months ago with Wal-Mart. "We've got discussions going on with other third-party distributors," Meyers said. "Between that as well as a push into more small- and medium-size businesses, I think we're going to be able to expand the distribution in a couple of different channels," he added.

Addressing the customer "bounties" being offered by some operators, such as AT&T (NYSE:T), which is offering $450 in credit to customers who switch from T-Mobile US (NYSE:TMUS) and trade in their smartphones, Meyers said he is not convinced these are more than short-term offers.

U.S. Cellular has built out LTE across 90 percent of its customer base, using both 850 MHz and 700 MHz spectrum, and 34 percent of its customer base is on LTE devices, Meyers said.

He noted U.S. Cellular will not participate in the upcoming H Block auction due in part to interoperability issues with its existing holdings. "Right now I'm pretty comfortable with our overall spectrum positioning," Meyers said.

For more:
- see this U.S. Cellular release

Related Articles:
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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
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