U.S. Cellular reports weak subscriber growth, shares plummet

By Wenjing Yang

Shares of United States Cellular Corp. plummeted nearly 9 percent on Friday after the company reported worse-than-expected subscriber metrics in the fourth quarter and announced that it will introduce unlimited-data plans.

U.S. Cellular shares closed at $40.90, down $3.94.

The Chicago-based wireless services provider reported its net loss widened to $6 million, or 7 cents per diluted share, in the fourth quarter ended Dec. 31, more than triple its net loss of $2 million, or 2 cents per diluted share, a year earlier, but beat analysts’ estimate of a loss of 35 cents.

Revenue rose slightly to $991 million, up 0.4 percent from $987 million, while analysts polled by Bloomberg estimated $1.03 billion.

Telephone & Data Systems Inc., the parent company of U.S. Cellular, reported a net loss of $5 million, or 5 cents per diluted share, compared with a year-earlier loss of $1 million, or 1 cent per diluted share.

“There was nothing to like, or to be surprised about, in U.S. Cellular’s fourth-quarter results,” wrote Alex Zhao, analyst at Morningstar Inc., in a research note. “We maintain our view that the firm’s operations are destroying shareholder value.”

The fifth-largest U.S. wireless carrier also announced its unlimited-data offering, which the four national carriers have already started to offer early this year.

U.S. Cellular’s unlimited-data plan starts at $60 per month for a single line with autopay and paperless billing enrollment, and users can pay as low as $40 per line with four smartphones.

“2016 was a year of continued progress for U.S. Cellular,” said Kenneth R. Meyers, U.S. Cellular president and CEO, in a press release. “Greater smartphone adoption and increased data usage, combined with strong cost management, helped to offset some of the competitive pricing pressures throughout the year.”

“As some of the most competitive pricing promotions persist across the industry, we have worked to balance growth and profitability, which enabled us to hit our profitability targets, albeit with slower customer growth,” Meyers said.

The unlimited-data plan wars are heating up as U.S. Cellular introduced its offerings on Friday. (Wenjing Yang/MEDILL)
The unlimited-data plan wars are heating up as U.S. Cellular introduced its offerings on Friday. (Wenjing Yang/MEDILL)

U.S. Cellular, which accounts for the bulk of Telephone & Data’s revenue, had been steadily losing contract customers amid heavy competition from its much larger rivals.

In the December quarter, U.S. Cellular lost a total of 25,000 net postpaid phone customers, a net postpaid loss for the second consecutive quarter.

The net loss of 2,000 was cushioned by a 23,000 gain in connected devices.

Churn rate, the percentage of subscribers who discontinue their subscriptions, stayed low at 1.4 percent, but connected devices churn spiked to 2.5 percent compared with 2 percent a year ago.

Average Revenue Per User, or ARPU, a measurement of a wireless service’s revenue each user generates, declined 12.2 percent to $45.19 from $51.46.

On the prepaid side, the company added only 4,000 customers, the weakest level in two years. Prepaid ARPU declined for the sixth consecutive quarter by 6.4 percent to $33.25.

Zhao said the weak subscriber growth coupled with decline in revenue metrics raised doubt on “how sticky or profitable these customer lines are.”

Despite a gloomy outlook for 2017, Zhao said he maintains his 12-month target price at $42, considering the value of the firm’s spectrum assets to potential bidders.

For the full year, the company reported revenue of $3.94 billion, down 1.4 percent from $3.99 billion, slightly lower than analyst estimates.

Net income was $48 million, or 56 cents per diluted share, down 80 percent from $241 million, or $2.84 per diluted share in 2015.

The annual comparison is skewed by a $58 million revenue entry benefiting from discontinuation of a loyalty rewards program in 2015 and a $13 million charge for the discontinuation of a naming rights agreement in 2016.

For the coming year, U.S. Cellular executives on a conference call with investors said the company will focus on protecting customer base, reducing the costs and drive additional revenue via accessory sales, the internet of things, and business and government connections.

U.S. Cellular affirmed its flat revenue guidance of $3.8 billion to $4 billion in 2017 and lowered its forecast for adjusted earnings before interest, taxes, depreciation and amortization to $650 million to $800 million.

Analysts had predicted revenue of $4.02 billion and net income of $72 million, or 92 cents per diluted share, in 2017.

Photo at top: A U.S. Cellular Store at 611 Hometown Circle, Verona, Wis. (Photo via Quality Cellular)