U.S. Cellular justifies plan not to use DO

U.S. Cellular Corp. executives told analysts that they continue to be skeptical about the value of upgrading their CDMA 1x RTT network to EV-DO, preferring to wait until they are certain to see a return on the network investment before doing anything more than dabbling in faster mobile data networks.
The sixth-largest U.S. carrier, which operates primarily in Midwestern markets, has one EV-DO trial market in Minnesota. Kenneth Myers, formerly CFO for U.S. Cellular and new CFO of parent company Telephone and Data Systems Inc., noted that U.S. Cellular’s average revenue per user with its 1x network is only a couple of dollars shy of the ARPUs of larger competitors with faster networks, and an EV-DO upgrade for the network could cost between $300 million and $400 million.
“A couple of bucks of ARPU doesn’t pay for a technology upgrade that’s got maybe a two-year window on it,” Myers said. He added that “every year we can delay that investment and skip a generation, the better off we are.”
The remarks came during the Merrill Lynch Communications Forum in New York last week. LeRoy T. Carlson, TDS’ president and CEO, said that a trial of fixed wireless high-speed data services in TDS’ competitive local exchange carrier markets using “early WiMAX” technology is going well.
Myers said that U.S. Cellular did not launch any new markets last year or plan for any in 2007, in order to concentrate on increasing penetration in its existing markets.
U.S. Cellular also announced third-quarter financials and some selected operating results from the fourth quarter of 2006. The company has been going through a series of financial restatements that have delayed the reporting of its quarterly results.
U.S. Cellular said that its customer base grew 8 percent from the third quarter of 2005 to a total of 5.73 million customers at the end of the third quarter of 2006. Of that total, 5.13 million were retail customers. The carrier’s total net customer activations were sharply down in the third quarter, however, at just 25,000 subscribers-about a third of the 76,000 net activations during the third quarter of 2005. Jack Rooney, U.S. Cellular’s president and CEO, said in a company statement that the sharp drop in the total number was due to a loss of prepaid customers, adding the company signed up 40,000 net postpaid customers during the third quarter. About 95 percent of U.S. Cellular’s customer base is postpaid, and about 5 percent is prepaid.
The carrier reported that its ARPU ticked up 4 percent year-over-year to $47.93, and its data revenues boomed 74 percent compared to the year-ago period, to $54.7 million. Postpaid churn stood at 1.6 percent.
For the fourth quarter of 2006, the company’s customer figures continued to be lower. U.S. Cellular reported 86,000 net customer activations, down from the 125,000 net customer additions during 2005’s fourth quarter. Gross additions fell from 392,000 in the fourth quarter of 2005 to 375,000 in the same period of 2006. Postpaid churn during the quarter fell year-over-year and sequentially to 1.5 percent, from 1.6 percent.
The carrier said it expects to report operating revenue between $890 million and $910 million for the fourth quarter, up from $785 million as restated for the last quarter of 2005.