Business Overview: A Legacy of Innovation and Resilience

Established in 1983 as a subsidiary of Telephone and Data Systems, Inc. (TDS), USM has been a pioneer in the wireless communications space, continuously investing in network infrastructure and technology advancements to deliver high-quality services to its customers. The company began as a regional wireless service provider, serving customers in portions of 21 states across the United States. Over the years, USM has expanded its footprint and built out its wireless network to better serve its growing customer base.

A significant milestone in USM's history came in 1997 when the company completed its initial public offering, becoming a publicly traded company listed on the New York Stock Exchange. This move provided USM with additional capital to invest in network expansion and new technologies. In the early 2000s, USM made substantial investments to upgrade its network to 3G and 4G LTE capabilities, enabling it to offer higher-speed data services to its customers.

Throughout its history, USM has faced intense competition in the wireless industry, particularly from national carriers like Verizon, AT&T, and T-Mobile. To remain competitive, the company has had to work diligently to retain and attract customers in its regional markets, requiring ongoing investments in its network, devices, and pricing/promotional strategies. The rapid pace of technological change in the industry has also necessitated continuous evolution to keep up with new standards and customer demands.

Despite these competitive pressures, USM has managed to maintain a loyal customer base and a reputation for quality service in its markets. The company has also diversified beyond just wireless services, building up a sizable tower leasing business where it rents space on its owned cell towers to other carriers. This diversification has provided an additional revenue stream and helped offset some of the volatility in the core wireless business.

Today, USM stands as the fourth-largest full-service wireless carrier in the United States, serving a diverse customer base with a combination of postpaid and prepaid wireless services. The company's retail connections stood at 4.40 million as of December 31, 2024, with a balanced mix of 4.00 million postpaid and 0.40 million prepaid connections. USM's commitment to maintaining a high-quality network, providing outstanding customer service, and offering competitive devices, plans, and pricing has been the cornerstone of its strategy.

Financial Performance: Navigating Headwinds and Unlocking Value

Despite the competitive landscape and industry-wide challenges, USM has demonstrated resilience in its financial performance. In the fiscal year 2024, the company reported total operating revenues of $3.77 billion, a slight decrease of 3% from the previous year. Net income attributable to USM shareholders, however, experienced a significant decline, reaching a loss of $39 million, or $0.46 per diluted share, compared to a profit of $54 million, or $0.63 per diluted share, in 2023.

The company's adjusted EBITDA, a key metric that reflects its operating performance, increased by 3% to $845 million in 2024, highlighting its efforts to maintain profitability amidst industry headwinds. Free cash flow, another important indicator, also improved, rising from $192 million in 2023 to $280 million in 2024, a testament to USM's financial discipline and operational efficiency.

In the most recent quarter, USM reported revenue of $970 million and net income of $5 million. While year-over-year revenue declined by 3%, net income increased compared to Q4 2023. The revenue decline was primarily due to a decrease in average postpaid and prepaid connections, partially offset by an increase in postpaid ARPU. The increase in net income was primarily due to lower operating expenses.

Strategic Shift: Unlocking Value through Divestiture

In 2024, USM embarked on a transformative strategic review process, ultimately announcing a series of transactions that aim to unlock significant value for its stakeholders. The company's most notable move was the agreement to sell its wireless operations and select spectrum assets to T-Mobile US, Inc. for a total purchase price of $4.40 billion, subject to adjustments.

This divestiture aligns with USM's strategy to streamline its business and focus on its Tower segment, which the company believes holds promising growth potential. Additionally, USM announced the sale of certain wireless spectrum licenses to Verizon Communications Inc. and AT&T Inc. for $1.00 billion and $1.02 billion, respectively, further strengthening its financial position and allowing it to opportunistically monetize its spectrum assets.

The proceeds from these transactions, once completed, are expected to provide USM with the resources to optimize its capital structure, reinvest in its core businesses, and potentially return capital to shareholders. The company's management team is committed to ensuring a smooth transition and positioning the remaining assets for long-term success.

Operational Highlights: Continuous Network Enhancements and Customer Focus

Amidst the strategic shifts, USM remained committed to enhancing its network capabilities and improving the customer experience. The company continued to invest in the deployment of its 5G technology, particularly in the mid-band spectrum, which now covers nearly 50% of its data and voice traffic. This investment has enabled USM to enhance the speed and capacity of its network, meeting the growing demand for high-speed data services.

In 2024, USM's postpaid handset net losses decreased, driven by improvements in customer churn. The company's focus on customer retention activities, including attractive promotional offers for existing customers, and its continued investment in the "built for us" brand have contributed to these operational improvements.

USM made meaningful year-over-year progress in retail subscriber results, including significant growth in fixed wireless, which surpassed 150,000 customers. Despite these improvements, USM's net retail subscriber adds were still negative due to the challenges of the competitive environment.

Outlook and Challenges: Navigating Uncertainty, Seeking New Horizons

Given the pending T-Mobile transaction and other announced spectrum sales, USM has refrained from providing financial guidance for the fiscal year 2025. The company's management team is dedicated to diligently executing these transactions while maintaining a laser-sharp focus on its operations and customer base.

One of the key challenges facing USM is the lack of scale and structural disadvantages relative to its larger competitors. This has historically made it more difficult for the company to compete effectively, particularly in terms of pricing, network quality, and access to the latest devices and technologies. The company's management team is actively exploring ways to address these challenges, potentially through strategic partnerships or further optimization of its asset portfolio.

Additionally, the evolving regulatory landscape, including potential changes to spectrum ownership rules, could present both opportunities and risks for USM. The company's ability to navigate these regulatory shifts and capitalize on emerging trends will be crucial in determining its long-term success.

After the close of the announced transactions, the remaining USM business will consist primarily of the tower business, equity method investment interests, and the remaining spectrum portfolio (about 30% of the existing spectrum portfolio, mostly C-band spectrum). USM remains bullish on the long-term outlook for the tower business and believes the attributes of the remaining C-band spectrum are attractive.

Financials

United States Cellular Corporation reported total operating revenues of $3.77 billion for the fiscal year 2024, representing a 3% decrease from the previous year. The company experienced a net loss attributable to USM shareholders of $39 million, or $0.46 per diluted share, compared to a profit of $54 million, or $0.63 per diluted share, in 2023. Despite these challenges, USM's adjusted EBITDA increased by 3% to $845 million in 2024, demonstrating the company's efforts to maintain profitability in a competitive environment.

The Wireless segment, which generates the majority of USM's revenues, faced significant headwinds in 2024. Wireless service revenues were $2.67 billion, down 2% from the prior year, primarily due to a decrease in average postpaid and prepaid connections. Equipment sales revenues were $783 million, down 9% year-over-year, driven by a decline in smartphone device sales from lower upgrades and gross additions, partially offset by higher average prices for new smartphone sales.

The Towers segment, however, showed growth in 2024. Third-party tower revenues were $103 million, up 2% year-over-year, primarily due to an increase in new tenant and equipment change executions, partially offset by some terminations. Intra-company revenues, where the Wireless segment pays the Towers segment for use of company-owned towers, were $131 million in 2024, up 3% from 2023.

USM's annual operating cash flow for 2024 was $883 million, while annual free cash flow reached $280 million. The company delivered on the guidance set at the beginning of 2024, achieving a solid year of financial and operating results. All cash expense categories were down in 2024 despite increased data usage by customers, which rose 37% year-over-year.

Liquidity

USM's liquidity position improved in 2024, with free cash flow rising from $192 million in 2023 to $280 million in 2024. This increase reflects the company's financial discipline and operational efficiency. The pending transactions, including the sale of wireless operations to T-Mobile and spectrum sales to Verizon and AT&T, are expected to significantly bolster USM's liquidity position, providing resources for potential capital structure optimization, business reinvestment, and shareholder returns.

As of the most recent reporting period, USM's debt-to-equity ratio stood at 0.83, indicating a relatively balanced capital structure. The company held $144 million in cash and cash equivalents, with an available credit line of $748 million, which includes a $300 million revolving credit facility and a $448 million receivables securitization facility. USM's current ratio of 1.52 and quick ratio of 1.32 suggest a healthy short-term liquidity position.

In 2024, USM strengthened its balance sheet by paying down over $200 million in debt, further improving its financial flexibility. The company expects to be in a position to return capital to shareholders upon the close of the T-Mobile transaction, though any decisions around that will be made by the board of directors in due course.

Industry Trends and Competitive Landscape

The US wireless telecommunications industry remains highly competitive, with intense competition in service plan pricing, device offerings, network quality and speed, and promotional activity. Competitors include national and global telecommunications companies as well as cable wireless providers. Industry revenue and profitability have been under pressure due to these competitive dynamics.

5G deployment across the industry is a key focus area to address growing customer demand for data services and enable new service offerings. USM's investments in 5G technology, particularly in the mid-band spectrum, have positioned the company to compete more effectively in this evolving landscape.

The competitive environment has created challenges for USM, particularly due to its lack of scale compared to larger national carriers. This has resulted in structural disadvantages in terms of higher costs per subscriber and difficulties in matching the pricing and promotional offerings of larger competitors. These factors have contributed to the pressure on USM's Wireless segment revenues and operating income in recent periods.

Conclusion: Embracing Change, Unlocking Potential

United States Cellular Corporation has demonstrated remarkable resilience and adaptability in the face of a dynamic wireless industry. Through strategic divestiture, network enhancements, and a steadfast commitment to customer service, the company is positioning itself for a future of increased focus and financial flexibility.

As USM navigates the evolving landscape, its ability to leverage its remaining assets, such as its Tower segment and spectrum holdings, will be critical in unlocking long-term value for its shareholders. With a seasoned management team at the helm and a clear vision for the future, USM is poised to capitalize on the opportunities that lie ahead, solidifying its place in the ever-changing world of wireless communications.