Telephone and Data Systems Inc. said start-up costs associated with its personal communications services business, Aerial Communications Inc., reduced cash flow and operating income during the first quarter, while United States Cellular, TDS’ cellular business, continued to be the company’s work horse.
TDS reported a net loss, excluding gains from asset sales, of $38.8 million, or 64 cents per share, during the first quarter compared with a net income of $9.1 million, or 15 cents per share (diluted), the previous year. The net loss associated with Aerial’s operations reduced earnings per share by 75 cents in the quarter compared with 19 cents in the first quarter 1997.
Revenues grew 35 percent from first-quarter 1997 to $392 million, fueled by a 33-percent jump in U.S. Cellular’s revenues and a 56-percent increase in cellular customer units.
“In 1998, we anticipate strong customer and revenue growth as well as strong cash flow and earnings performance in our U.S. Cellular and TDS Telecom groups,” said LeRoy Carlson Jr., president and chief executive officer of TDS. “We also expect that the costs of Aerial’s operations will continue to reduce cash flow and earnings during 1998. Thereafter, we currently anticipate a return to strong positive growth in cash flow and earnings.”
Aerial reported a net loss for the quarter of $86.9 million, or $1.21 per share, compared with a net loss of $22.3 million, or 31 cents per share, the previous year. Revenues totaled $30.7 million.
Chicago-based Aerial, which now has more than 165,000 customers, said it added 40,000 customers during the quarter. Average monthly revenue per user decreased from $70 during the fourth quarter to $57. Aerial said the drop was expected given the changing characteristics and mix of its customer base.
“With a broader target of wireless users, Aerial’s average minutes of use have declined to the low 300-minute range,” said Don Warkentin, president and chief executive officer of Aerial.
Aerial said its churn rate was about 4.5 percent during the first quarter, reflecting a significant number of Aerial-initiated deactivations of nonpaying customers.
U.S. Cellular said net income, excluding after-tax gains on sales of investments, increased 6 percent to $19.5 million, or 22 cents per share (diluted), from $18.5 million, or 21 cents per share (diluted), in 1997. Net customer unit activations from marketing channels increased 18 percent in the first quarter to 107,000 compared with 91,000 activations during the first quarter 1997. Total customer units increased to 1.8 million in the first quarter. Service revenues increased 32 percent to $236.3 million compared with $179.6 million in 1997.
U.S. Cellular said it recognized $180 million in pre-tax gains during the first quarter and completed divestitures, including exchanging markets with BellSouth Corp. and selling investment interests in AirTouch Communications Inc.
“We are continuing to invest in our network and business systems to increase capacity and quality,” said Donald Nelson, president and chief executive officer of U.S. Cellular. “During the quarter, we began rolling out our new customer billing and information system.”
TDS reported an $11.4 million operating loss from American Paging Inc., which recently merged with TSR Paging Inc. As of March 31, TDS contributed most of the assets and certain liabilities of American Paging, and TSR contributed all its assets and liabilities to a company called TSR Wireless Holdings L.L.C. TDS is expected to hold a 30-percent interest in the new company.
