UScellular loses another 40K subs in Q2

UScellular lost another 40,000 postpaid phone subscribers in the second quarter after a string of quarterly losses, including 44,000 in the prior quarter.

Therefore, it’s no surprise that the first question on Friday's earnings call Q&A was about its ability to get back to positive postpaid phone adds. What exactly, asked Raymond James’ Ric Prentiss, is it going to take – a larger switching pool, lower churn, more aggressive local offers?

UScellular President and CEO Laurent “LT” Therivel said he sees a path to positive net adds, and the biggest near-term requirement to get there is to improve churn, notably voluntary churn.

“The offer that we launched here is specifically designed to address that,” he said. Over the past couple years, they’ve seen a larger percentage of customers that are out of contract, and out-of-contract customers churn at a substantially higher rate than in-contract customers. “The goal is how do we get customers back into contract.”  

One way to do that is through a new promotion that launched in June, which includes the offer of a new phone for free to anyone, whether they’re new or existing customers. That came after UScellular did a series of regional tests and trials in the second quarter to improve its subscriber numbers. The deal comes with a 36-month installment contract.

Due to timing, that promotion had little impact on second quarter subscriber results, but “we believe this will meaningfully address a number of subscriber challenges” that were identified earlier in the year, Therivel said.

While it’s still early, “we’re seeing really good results,” he said, with upgrades up substantively. Add-a-line performance also is increasing.

The expectation is they will see a steady churn improvement throughout the second half of the year, starting  in the third quarter and hopefully more in the fourth quarter, he said.

UScellular is maintaining its profitability outlook for the year even with its aggressive promotions, he said.

While AT&T and Verizon instituted price hikes on some plans, UScellular said it won’t raise prices on existing rate plans until at least the end of 2023. It’s already seen nearly 20% of new customer additions cite that pricing guarantee as their reason for switching to UScellular, Therivel said.

Room for tower growth

While bigger operators sold off tower assets years ago, UScellular remains in a unique position in that it owns 4,323 towers.

Its tower business produced revenue growth in the second quarter, up 13%, due mainly to the number of co-locators. It’s done a great job of streamlining so that it can get more tenants on its towers more quickly, he said.

But in order to see a big change in that business, the company needs do more to improve its co-location rate, he said. The team has put a variety of operational streamlining mechanisms in place to make it easier for people to work with UScellular, he said.

“We were not particularly open for business a few years ago and now we are,” he said. Cycle times have consistently improved quarter after quarter, and he’s encouraged by the revenue that they’ve seen thus far this year.

“It’s a lumpy business,” he said. “We’re targeting continued low double digit revenue growth in that business.”

The best way to get more towers in the pipeline goes back to the infrastructure funding opportunity in the government’s Infrastructure Investment and Jobs Act (IIJA).

“It costs a lot of money to put a tower in rural America,” he said, noting a back-of-the-envelope figure of $600,000 or $700,000 per tower. “We’ve been investing in rural America for a long time.”

UScellular has an opportunity to improve its current tower business by building new towers, which improve coverage. That’s difficult without some subsidy. Doing that on a stand-alone basis is challenging, he said. 

The reason he’s encouraged that IIJA allows for wireless and fixed wireless is “if we can get states to move some of their infrastructure dollars towards fixed wireless, we can put new towers in place to cover those consumers and businesses” with fixed wireless. That would also improve its wireless coverage and drive co-location revenue.

Meanwhile, fixed wireless/high-speed internet continues to grow, with gross adds up 23% year over year. It now offers unlimited fixed wireless across its entire footprint. Most of the fixed wireless customers – almost 60,000 – are using LTE.

It also continues to expand its 5G millimeter wave footprint and plans to launch C-band in late 2023 or early 2024 when that spectrum clears.

Here are a few other snippets from UScellular’s latest earnings:

  • Net income attributable to UScellular shareholders and related diluted earnings per share were $21 million and 25 cents, respectively, compared to $35 million and 39 cents, respectively, in the same period a year ago.
  • Service revenues were $783 million versus $774 million for the same period one year ago.
  • ARPU was $50.07.
  • Handset churn rate was 1.10%.
  • Loss in prepaid customers was 4,000, which was an improvement over the first quarter loss of 18,000. Prepaid churn was 4.07%.