US Cellular President and CEO Laurent Therivel painted a vision of a highly competitive wireless landscape for the rest of 2021, populated with aggressive offers to entice 5G adoption among consumers. He said that the wireless carrier is optimistic about the business case for 5G Fixed Wireless Access (FWA) broadband, which it has been extensively testing — but that ultimately, the market for FWA will depend on whether there are also substantive expansions of fiber connectivity.
US Cellular reported service revenues for the quarter of $774 million, up from $753 million in the year-ago quarter. Profits were $35 million, compared to $68 million at the same time last year. US Cellular saw an increase in its prepaid customer base of 11,000 lines, but overall, it posted a net loss of 6,000 customer lines, with losses coming from feature phone lines and other connected devices outweighing smartphone customer gains. The carrier did see higher churn compared to the same period last year, when switching was muted because of the impacts of the Covid-19 pandemic. Postpaid handset churn was at 0.88% during the most recent quarter, compared to 0.71% a year ago. Total postpaid churn was 1.11%.
US Cellular expects to spend between $775 million-$875 million in capital expenditures this year.
Therivel said US Cellular “made meaningful progress towards our strategic priorities.” He noted that higher postpaid revenues were being driven by customers moving to higher-value plans, that US Cellular is seeing results from its efforts to expand its prepaid business and that it is “laying the foundation for future growth” in the enterprise and government sectors.
On the company’s quarterly call with investors — held in conjunction with executives from parent company Telephone and Data Systems (TDS) and the TDS Telecom wireline services division — Therivel said the strategic priorities are simple and designed to drive growth over time, including a focus on profitable growth in a competitive environment filled with aggressive promotions, which impacted US Cellular’s postpaid subscriber results. He said that US Cellular continues to leverage its regionally focused strategy to “test different offers to help us hone in on the right balance between subscriber growth and profitability.”
“I believe one of the benefits of having noncontiguous regions is the ability to test different approaches to see what resonates with our customers,” Therivel said, going on to add, “We’ve got some very aggressive offers to drive switching in certain markets with more upgrade-focused offers than others. We’re going to continue to work these trials so that we have the right approach when we get to the main selling season later this year.”
In terms of US Cellular’s network, Therival said that the majority of its traffic is now being carried by sites that have 5G deployed. US Cellular has been busy with extensive testing of the use of millimeter-wave spectrum for Fixed Wireless Access (FWA), and he said that the company is optimistic about that opportunity. Related to mmWave, he described two tracks of work: One on technology testing and one on what the market demand will be for FWA.
“The technology testing, frankly, is exceeding our expectations,” Therivel said, noting that the company has been able to achieve near-gigabit speeds over a distance of 10 kilometers, which would enable it to bring more areas into its footprint cost-effectively. In terms of demand, he said, “it’s very clear that customers in our areas are looking for alternatives to the current providers in the marketplace.”
He expects US Cellular to have a commercial mmWave product by next year that offers a “meaningful opportunity” for the company — but he told analysts that there’s both a bull case and a bear case for mmWave FWA. If there is truly a focus on substantive fiber expansion out from cities, that means a narrower, bear case for FWA — still meaningful, but not as large. But if fiber doesn’t expand out from municipalities, Therivel said, then FWA is looking at a greater opportunity to offer an alternative to both satellite-based performance in rural areas as well as cable in the suburbs.
He said that the take-rates on US Cellular’s pilot programs have been higher than expected. “What that tells me is that customers are eager for an alternative to cable and are eager for an alternative to the other solutions that are out there from a rural perspective,” he said. “Wireless, broadly, can provide a really compelling alternative for home connectivity in not just rural areas, but call it suburban areas. … I think we’ll be in the drivers seat when it comes to offering that solution to our customers once we’re finished with the technical trials.”
Meanwhile, Vicki Villacrez, CFO of TDS Telecom, said that TDS’ wireline service business continues to be “very bullish on our fiber strategy and how it will transform TDS Telecom in a very meaningful way over the next several years.” On the wireline side, Villacrez said that TDS Telecom grew its footprint by 6% during the quarter and that the company’s focus on broadband connection growth generated a 16% increase in residential broadband revenue, and that TDS Telecom is offering gigabit speeds to 56% of its fiber and DOCSIS 3.1 footprint. In areas where it offers one-gigabit speeds, 21% of new customers are signing on to that product; meanwhile, TDS has 40% of broadband customers also signing up for video services in the markets where it offers them, which is about half of its wireline footprint.
Therivel also briefly delved into how the newly announced AT&T network services deal with Dish Network may ripple into US Cellular’s business; US Cellular has signed an agreement with Dish that he said would drive both revenue and utilization of company assets (US Cellular owns its own towers and TDS has its own fiber assets). He said that it was logical for Dish to seek a partner to supplement its own network build out, and that for AT&T, it made sense for them to step in to take the opportunity to be that partner since it had to be someone. US Cellular, meanwhile, has coverage where AT&T does not, which provides the smaller carrier with an opportunity to work with Dish as well.
In terms of the competitive landscape, Therivel said that he sees two major factors: The aggressive 5G-centric offers, which he says are logical for the near-term as an increasing number of customers come out of contracts post-covid, 5G availability expands and carrier focus on getting 5G devices into their customers’ hands. In that context,Therivel said he wasn’t surprised to see more aggressive offers, and that US Cellular expects to the competitive landscape to continue to be filled with them at least through the end of this year.
Then there’s the possibility of increased competition specifically in rural markets. One analyst wanted to know, is US Cellular seeing increased competition from T-Mobile US? The carrier has touted its focus on rural expansion of retail and said that during the past quarter, nearly one-third of its new postpaid account activations during the second quarter came from smaller markets and rural areas, up from about a quarter of activations in 2020.
“T-Mo has made a lot of noise about their expansion into rural areas,” Therivel responded. “We have not seen it.” He said that in the company’s tracking of market share, it sees T-Mobile’s share of the market remaining steady rather than gaining or losing. “What we do is hard. Putting in networks, monetizing networks — it’s difficult. Different people have said, ‘Oh, we can do that, too.’ … It’s much harder than people think,” Therivel said. “And it’s even harder in rural America than it is in urban. And I’m not taking T-Mobile lightly,” he was quick to add. “They’re a well-run company. They’re a formidable competitor. But so far, what we’re seeing is more marketing than it actually is network deployment and customer action.”
