U.S. Cellular loses customers, gains ARPU, bolsters bottom line

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For U.S. Cellular (USM), first quarter results showed that a negative plus a positive can result in a slight positive, as the carrier’s shrinking customer base was offset by increased consumer spending resulting in revenue gains.

During the first three months of the year U.S. Cellular said it lost 34,000 subscribers, which was slightly more than the 31,000 customers the carrier lost last year. The losses were entirely from the carrier’s postpaid operations as its prepaid service managed to add 4,000 customers during the quarter. U.S. Cellular is looking to build on that prepaid success having recently announced a partnership with fellow regional operator Alltel to offer a prepaid service through select Walmart locations.

U.S. Cellular’s net customer losses were also impacted by increased postpaid customer churn, which grew from 1.4% during the first quarter of 2011 to 1.6% this year. That increase offset a slight uptick in gross customer additions during the quarter.

U.S. Cellular ended the quarter with 5.57 million direct customers on its network, down from the nearly 5.7 million at the end of the first quarter last year.

Despite the shrinking base, the customers that remain are spending more each month. The carrier’s consolidated average revenue per user surged nearly $4 year-over-year to $58.21. Helping boost this growth is the continually increasing penetration of smartphones across its customer base, which rose from 20.3% last year to 34.4% at the end of the first quarter. This for a carrier that famously declined to carry Apple’s iPhone.

U.S. Cellular could also see an impact from recent changes to its postpaid rate plans, having dropped the inclusive data bundle from its Belief Plan in favor of allowing customers to pick from various data bundles. The carrier had previously offered a flat bucket of 5 gigabytes of data transmission for smartphone customers. The new plans allow customers to choose from 100 megabytes for $10; 300 MB for $20; 2 GB for $25; 5 GB for $50; or 10 GB for $90 per month, and when combined with its voice/messaging plans are a significant price bump compared with the old plans.

This ARPU growth helped U.S. Cellular squeak out a 3% increase in total revenues to $1.092 billion during the quarter. Operating expenses were up just a slight 1% year-over-year, which helped bolster net income 71% to $69 million for the quarter.

Looking ahead, U.S. Cellular said it was on track to spend approximately $850 million this year on capital expenditures, including the continued expansion of its recently launched LTE network.

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