United States Cellular Corporation (USM) has a storied history as a regional wireless provider, carving out a niche by delivering exceptional service and innovative offerings to customers across 21 states. With a focus on leveraging its network capabilities and strategic partnerships, USM has navigated the dynamic telecommunications industry, adapting to changing market dynamics and capitalizing on emerging opportunities.
Company Background and History
Established in 1983 as a subsidiary of Telephone and Data Systems, Inc. (TDS), USM has grown to serve 4.5 million retail connections, including 4.0 million postpaid and 0.5 million prepaid subscribers. The company's commitment to providing superior wireless communication services has earned it a reputation for enhancing consumer lives, boosting the competitiveness of local businesses, and improving the efficiency of government operations within its footprint.
In its early years, USM faced challenges common to many regional wireless carriers, including building a customer base and network coverage to compete with national players. The company made significant investments to expand its network and subscriber base through the 1990s and 2000s, while also building up its portfolio of wireless spectrum licenses through auctions and acquisitions. Despite its regional scale, USM has had to navigate a highly competitive wireless market dominated by national carriers, facing pressure on pricing and promotional activity to attract and retain customers.
Strategic Initiatives and Partnerships
To address its scale disadvantage, USM has focused on providing high-quality local customer service and developing innovative product and service offerings. The company has also leveraged partnerships, such as its interests in wireless market partnerships like the Los Angeles SMSA Limited Partnership, which have provided additional cash flows and enhanced its competitiveness. Throughout its history, USM has demonstrated resilience in the face of industry challenges, continuing to invest in its network and make strategic moves to position itself for long-term success.
USM's strategic vision has evolved in recent years, as the company has sought to optimize its asset portfolio and unlock shareholder value. In 2024, the company announced a landmark agreement to sell its wireless operations and select spectrum assets to T-Mobile for a transaction valued at $4.4 billion. This move, subject to regulatory approval, represents a significant milestone in USM's strategic transformation, allowing the company to focus on its tower business and the monetization of its remaining spectrum holdings.
Spectrum Monetization
Recognizing the inherent value of its spectrum assets, USM has been proactively executing a series of transactions to opportunistically monetize the spectrum not included in the T-Mobile deal. In October 2024, the company announced the sale of a portion of its AWS, Cellular, and PCS spectrum licenses to Verizon for $1.0 billion, as well as additional agreements with two other mobile network operators for the sale of CBRS, C-Band, and 700 MHz spectrum. These transactions, totaling over $1 billion in aggregate proceeds, demonstrate USM's ability to realize substantial value for its spectrum holdings, well in excess of their book value.
Financials
USM's financial performance in recent years has been marked by a delicate balance between subscriber growth and operational efficiency. In the third quarter of 2024, the company reported a 2% decline in service revenues, driven by a decrease in the average subscriber base. However, the team's efforts to optimize costs and implement strategic promotional initiatives have resulted in improved profitability, with adjusted EBITDA increasing 3% year-over-year.
The company's postpaid ARPU (Average Revenue Per User) also grew by 2% in the third quarter, reflecting the success of USM's strategy to drive adoption of higher-tiered service plans. This, coupled with the team's disciplined approach to managing expenses, has enabled the company to raise its full-year profitability guidance, further strengthening its competitive position.
For the full year 2024, USM has narrowed and raised its guidance ranges. The company now expects adjusted OIBDA to be between $800 million and $875 million, and adjusted EBITDA to be between $970 million and $1.045 billion. Service revenues are projected to be in the range of $2.95 billion to $3.0 billion, with capital expenditures narrowed to $250 million to $600 million.
In the most recent fiscal year (2023), USM reported revenue of $3.91 billion, net income of $54 million, operating cash flow of $866 million, and free cash flow of $128 million. For the third quarter of 2024, the company reported revenue of $922 million, a net loss of $79 million (primarily due to a $136 million impairment charge related to millimeter wave spectrum licenses), operating cash flow of $245 million, and free cash flow of $131 million.
USM's liquidity position remains strong, with a debt-to-equity ratio of 0.84, a current ratio of 1.57, and a quick ratio of 1.39. The company has access to a $300 million revolving credit facility and a receivables securitization agreement with $448 million of unused borrowing capacity as of September 30, 2024.
Network Investments and 5G Deployment
Recognizing the industry's continued shift towards 5G technology, USM has remained committed to enhancing its network capabilities. The company currently has over 80% of its data traffic handled by sites upgraded with low-band 5G, providing a strong foundation for coverage. Going forward, USM's network investments will primarily focus on the deployment of mid-band spectrum, which is expected to enhance speed and capacity for its mobility and fixed wireless services.
Tower Business Growth
As USM navigates the evolving telecom landscape, the company's tower business has also emerged as a key growth driver. Despite a slowdown in industry-wide capital expenditures, USM has worked to establish agreements and relationships with carriers, positioning itself as a preferred tower provider. The company's efforts to optimize its ground lease portfolio and drive increased co-location rates on its existing tower assets have further strengthened the tower segment's profitability and long-term potential.
As of September 30, 2024, USM owned 4,410 towers, a 1% increase year-over-year. The average number of tenants per tower remained consistent at 1.55. In the third quarter of 2024, the Towers segment reported operating revenues of $59 million, up 2% year-over-year, with $26 million coming from third-party revenues and $33 million from intra-company revenues. The segment's operating income for the quarter was $19 million, flat compared to the prior year period.
Challenges and Strategic Decisions
The strategic decisions made by USM's leadership have not been without their challenges. In the third quarter of 2024, the company recorded a $136 million impairment charge related to its millimeter wave spectrum holdings, primarily driven by industry-wide challenges in operationalizing this spectrum. However, the company remains committed to prudently managing its asset portfolio and continually evaluating opportunities to unlock value for its shareholders.
Liquidity
Looking ahead, USM's future will be shaped by its ability to successfully complete the proposed transaction with T-Mobile, effectively integrate its tower business as a standalone entity, and continue to execute on its spectrum monetization strategy. The company's strong liquidity position, with $748 million in available undrawn borrowing capacity as of September 30, 2024, provides financial flexibility to support its strategic initiatives and navigate any potential headwinds.
Future Outlook and Customer Focus
In the midst of these transformative changes, USM has remained focused on delivering a superior customer experience, as evidenced by its recent ranking as the number one provider in the North Central Region by J.D. Power. This recognition underscores the company's commitment to investing in its network and reinforcing its position as a trusted regional wireless provider.
The wireless industry continues to face intense competition and pricing pressure, with cable and other new entrants competing aggressively for subscribers. The rapid growth in wireless data usage is driving significant network investment across the industry. USM's Wireless segment, which provides wireless service throughout the company's footprint, reported 4.45 million total retail connections as of September 30, 2024, including 4.00 million postpaid and 452,000 prepaid connections. Postpaid net additions were 28,000 for the third quarter and 95,000 for the first nine months of 2024.
As USM embarks on the next chapter of its evolution, investors will closely monitor the company's ability to capitalize on the opportunities presented by the dynamic telecom industry. With a proven track record of strategic adaptability and a steadfast focus on operational excellence, USM appears well-positioned to navigate the evolving landscape and create long-term value for its shareholders.