U.S. Cellular trialing VoLTE in 3 markets, expects launch later this year

U.S. Cellular (NYSE:USM) is trialing Voice over LTE technology in three markets right now and expects to turn the service on commercially sometime later this year, according to CEO Ken Meyers.

"We need to make sure we have a network in a VoLTE world that is the same quality we have in a CDMA voice world," he said, adding that CDMA has historically been a strong technology for the company. It's uncertain how the VoLTE rollout will impact the carrier's capital expenditures going forward, he said.

U.S. Cellular is constantly evaluating its spectrum position, Meyers added, but its overall strategy is to deploy both high- and low-band spectrum in preparation for a shift to carrier aggregation. The Tier 2 carrier will begin testing carrier aggregation technology later this year, he said. Carrier aggregation lets operators meld together non-contiguous chunks of spectrum to create wider channels and produce faster speeds for customers.

During the company's first-quarter earnings conference call, Meyers also addressed U.S. Cellular's decision to shutter its "Rewards" program for its customers this summer. Meyers said the program was "not as effective at attracting new customers" as U.S. Cellular wanted, and that "current customers do not rate it highly as a benefit."  Many customers were not even using the points they earned as part of the program, Meyers added. Shutting down the program will allow U.S. Cellular to "redirect resources to other products and services our customers value more."

Meanwhile, the carrier increased its full-year adjusted EBITDA guidance to between $580 million and $680 million (vs. an earlier estimate of between $530 million and $630 million). the carrier also boosted its operating cash flow guidance to the range of $400 million to $500 million (vs. $350 million to $450 million). Operating revenue and capex guidance were unchanged at $4 billion to $4.2 billion and $600 million, respectively.

"We are encouraged by the strong EBITDA performance and the guidance raise, which illustrates that USM's focus on profitability is beginning to pay off," Wells Fargo analyst Jennifer Fritzsche wrote in a research note.

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

Subscribers: The carrier added 9,000 postpaid customers in the first quarter, a sharp reversal from a loss of 93,000 postpaid customers in the year-ago period. The company added 12,000 prepaid customers in the first quarter, down slightly from 13,000 prepaid additions in the first quarter of 2014. The company has added postpaid subscribers for the last three quarters, but Meyers said he would have liked to have seen more subscriber growth in the first quarter.

In the first quarter the company lost 34,000 feature phone customers, and gained 3,000 smartphone customers and 40,000 tablet customers. The carrier ran a tablet promotion in the quarter that proved successful, Meyers said. The company ended the first quarter with 4.775 million total customers.

Financials: The carrier posted service revenue of $828 million, down 3 percent year-over-year from $854 million. However, equipment revenues jumped 90 percent to $137 million, up from $72 million in the year-ago period, reflecting the growth in equipment installment plans. Total operating revenues grew 4 percent to $965 million.

The company's adjusted EBITDA for the first quarter clocked in at $209 million, up 79 percent from $117 million a year ago. Net income was $160.1 million, up from $19.5 million a year ago.

Smartphones: The company sold 403,000 smartphones in the first quarter, and smartphone sales made up 85.7 percent of total handset sales in the quarter, down from 86.5 percent in the fourth quarter but up from 78.2 percent in the year-ago period. The company said 66.9 percent of its postpaid customer base has a smartphone, up from 64.8 percent in the fourth quarter and 55.8 percent in the year-ago quarter.

U.S. Cellular said 39 percent of the postpaid phones it sold during the quarter were on equipment installment plans, compared to 37 percent in the fourth quarter.

LTE and spectrum: The company said 94 percent of its postpaid customers and 87 percent of its cells sites now have LTE coverage. The company plans to have 98 percent of its customers covered with LTE by the end of 2015. Around 64 percent of the company's postpaid customers have an LTE-capable device, up from 61 percent at the end of the fourth quarter. Additionally, the company said 81 percent of the company's data traffic runs on its LTE network, up from 78 percent at the end of 2014.

Meyers said the company is "getting closer to finalizing a couple of LTE roaming agreements" but offered no other details.

Churn: U.S. Cellular reported postpaid churn of 1.5 percent in the first quarter, down from 1.6 percent in the fourth quarter and 2.3 percent a year ago, when it was dealing with the brunt of its churn problems related to its billing system conversion.

ARPU: The carrier said postpaid average revenue per user was $54.87, down from $56.51 in the fourth quarter and $57.59 in the year-ago period. Like other carriers, U.S. Cellular is seeing a shift from service revenues to equipment revenues as more customers choose equipment installment plans. Average revenue per account was $134.94 in the first quarter, down from $136.13 in the fourth quarter but up from $132.03 in the first quarter of 2014. 

For more:
- see this release

Special Report: Wireless in the first quarter of 2015

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