U.S. Cellular sells more smartphones, still loses 127K subs in Q2

U.S. Cellular (NYSE:USM) continued on its trajectory over the last several quarters of selling smartphones and losing customers, as the Tier 2 carrier struggles to break out of a pattern that is seeing its subscriber base dwindle. However, new CEO Kenneth Meyers said he thinks shared data plans, expanded LTE service and the iPhone will help it return to subscriber growth. The company did report a wider profit for the second quarter of $143.3 million, compared to $52.7 million a year ago.

Meyers, a longtime wireless and telecom executive and a veteran of Telephone & Data Systems, U.S. Cellular's parent company, took over in June at the end of the second quarter when Mary Dillon resigned to become CEO of Ulta Salon Cosmetics & Fragrance.

Meyers reiterated that the company is working to complete its LTE network expansion and that it will launch Apple (NASDAQ:AAPL) products, including the iPhone later this year. The company also will start offering shared data plans starting in September, which will be supported by a new billing and OSS system. The company has been working on the project with BSS/OSS vendor Amdocs for more than a year and a half. The company's billing system ran into hiccups last week when it was upgraded, and some customer transactions were unable to be processed. That led to longer than normal wait times when calling customer service, as well as extended wait times at retail stores.

Meyers said on the company's earnings conference call that the rollout of the new billing system did result in some issues, and that "we are now where we expect to be, but a few days later than planned." He said U.S. Cellular is excited about the capabilities the new system will offer, including for shared data plans and equipment installment plans, but he did not give details about those initiatives.

Also, at the end of June T-Mobile US (NYSE:TMUS) said it will buy 10 MHz of AWS spectrum from U.S. Cellular for $308 million in cash, bolstering T-Mobile's spectrum portfolio as it seeks to expand its LTE network using AWS airwaves. The spectrum covers a total of 32 million POPs in 29 markets in the Mississippi Valley region. The agreement came a little more than a month after U.S. Cellular closed a deal with Sprint (NYSE:S) for $480 million, in which U.S. Cellular sold PCS spectrum and offloaded its Chicago, St. Louis, central Illinois and three other Midwest markets to Sprint.

Meyers said on the company's earnings conference call that he did not anticipate major changes to U.S. Cellular's business, and that it will return to focusing on suburban and rural markets, primarily. He also said the company will focus on postpaid subscribers.

U.S. Cellular said it will continue to look at divesting non-core spectrum assets, though the deals will likely be smaller than the T-Mobile one. The company is also excited to participate in next year's planned incentive auctions of 600 MHz broadcast TV spectrum. The company is also considering selling its towers in divested markets, but not in its core markets.

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

Smartphones: Smartphones represented 66 percent of all devices sold in the second quarter, up from 61.7 percent in the first quarter and 51.9 percent in the year-ago period. Fully 45.5 percent of U.S. Cellular's postpaid subscriber base has a smartphone, up from 43.5 percent in the first quarter and 36.8 percent in the year-ago quarter. Meyers said that U.S. Cellular expects the introduction of the iPhone into its lineup later this year to help with subscriber additions, and that the company's iPhone will support LTE in Band 5, which is used on 850 MHz spectrum.

LTE: U.S. Cellular reiterated that it will bring LTE coverage to 87 percent of its customer base in 2013. The company said that in its core markets LTE smartphones were 84 percent of smartphones sold in the first quarter. U.S. Cellular also revealed that 40 percent of its data traffic is now on its LTE network. The company has said that by the end of the year customers in more than 3,800 additional cities and towns will have access to its LTE. U.S. Cellular said it will deliver LTE to "select cities" in California, Kansas and Nebraska and its existing LTE service will be expanded to include additional cities in Illinois, Iowa, Maine, Maryland, Missouri, North Carolina, Oklahoma, Oregon, Tennessee, Texas, Virginia, Washington, West Virginia and Wisconsin.

Subscribers: In total, for all its markets, U.S. Cellular lost 127,000 total customers in the quarter, including 120,000 postpaid subscribers, more than the 74,000 postpaid customers it lost in the first quarter and the 48,000 in the year-ago quarter. The carrier also bled 7,000 prepaid customers, a reversal from prepaid gains of 23,000 in the first quarter and 20,000 in the year-ago period.

In the company's core markets, which exclude the divested markets of Chicago, central Illinois, St. Louis and the certain Indiana, Michigan and Ohio markets, the company said it lost 53,000 postpaid customers, wider than the losses of 33,000 in the first quarter and 30,000 in the year-ago quarter. The company also gained 8,000 prepaid customers in its core markets, which is fewer than the 31,00 it added in the first quarter and 23,000 added in the year-ago period.

The company ended the second quarter with around 4.97 million total customers.

Churn: The company's total postpaid churn rate was 2 percent, higher than 1.7 percent in the first quarter and 1.6 percent in the year-ago period.

ARPU: U.S. Cellular's postpaid average revenue per user was $54.18, down slightly from $54.85 in the first quarter and $54.42 in the year-ago period.

Financials: Total revenue clocked in at $995.1 million, down 10 percent year over-year from $1.1 billion. Service revenue also fell 12 percent year-over-year to around $911 million.

For more:
- see this release

Special Report: Wireless in the second quarter of 2013

Related Articles:
Ntelos CEO talks up value of spectrum in light of AT&T/Leap deal
Regional operators disappearing in wake of industry consolidation
T-Mobile scoops up some of U.S. Cellular's AWS spectrum for $308M
Mary Dillon leaves U.S. Cellular, replaced by TDS exec Kenneth Meyers
U.S. Cellular changes course, will offer iPhone later this

Correction, Aug. 3, 2013: This article originally incorrectly stated that U.S. Cellular's iPhone will use LTE in Band 12 and Band 5; it will only use LTE in Band 5. 

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