QUOTE AND NEWS
SeekingAlpha  Jun 19  Comment 
By David Trainer: U.S. Cellular Corp. (USM), the fifth largest wireless carrier in the United States, has landed in the Danger Zone this week. The company's profits, margins and return on invested capital (ROIC) are all in decline, and its...
Cellular News  Jun 9  Comment 
USA based regional operator, Airadigm Communications is to close its services as a stand-alone mobile network following the sale of its spectrum and network assets to US Cellular. Click here for more.
DailyFinance  May 20  Comment 
Company Offering Four Lines of Service Sharing 10 GB of Data for $140 Per Month CHICAGO, IL--(Marketwired - May 20, 2014) - U.S. Cellular (NYSE: USM) announced today that it is lowering the cost of its Shared Connect plans for...
SeekingAlpha  May 2  Comment 
United States Cellular Corporation (USM) Q1 2014 Earnings Conference Call May 2, 2013 10:30 AM ET Executives Jane McCahon - VP of Corporate Relations Douglas Shuma - SVP and Controller Ken Meyers - President and CEO Steve...
newratings.com  May 2  Comment 
WASHINGTON (dpa-AFX) - Telephone and Data Systems, Inc. (TDS, TDI) Friday reported a higher first-quarter profit, reflecting fall in operating expenses, despite lower revenues. United States Cellular Corp. (USM), a unit of Telephone and Data...
DailyFinance  Apr 15  Comment 
CHICAGO, IL--(Marketwired - April 15, 2014) - United States Cellular Corporation (NYSE: USM) announced that Deirdre Drake has joined the company as Senior Vice President - Chief Human Resources Officer, effective today. Drake will lead the human...
DailyFinance  Apr 7  Comment 
For a Limited Time, Company Also Is Paying Off Your Old Contract CHICAGO, IL--(Marketwired - April 07, 2014) - U.S. Cellular (NYSE: USM) has launched new No Contract plans for customers with unlimited data, voice and messaging on...
Benzinga  Mar 3  Comment 
Analysts at Credit Suisse upgraded RPM International (NYSE: RPM) from “neutral” to “outperform.” The price target for RPM International has been raised from $47 to $50. RPM's shares closed at $41.86 on Friday. Citigroup upgraded Intuit...
StreetInsider.com  Mar 3  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Upgrades/JPMorgan+Upgrades+US+Cellular+%28USM%29+to+Overweight/9234623.html for the full story.
SeekingAlpha  Feb 26  Comment 
United States Cellular Corporation (USM) Q4 2013 Earnings Conference Call February 26, 2014 10:30 AM Executives Jane W. McCahon – Vice President of Corporate Relations Kenneth R. Meyers – President and Chief Executive Officer ...




 
TOP CONTRIBUTORS

United States Cellular (NYSE: USM) is a Midwestern mobile phone company with 6.1 million customers as of December 31, 2009.[1] The majority of U.S. Cellular's shares are owned by TDS, a fixed-line phone company owned largely by the Carlson family. This chain of ownership severely limits the diversity of the shareholder pool and focuses power within a small group of individuals, making independent USM shareholders vulnerable.

U.S. Cellular provides solid mobile phone services with customer-satisfaction goals, and is known for having a very low disconnect (churn) rate of under 2% for three years running. It is, however, primarily a rural carrier and, because of its size in comparison to competitors like Verizon and AT&T, the company has been known to be slower than competitors to release industry-standard services like data transmission and VoIP. This causes the company to lose potential revenue, and forces it to spend more in order to penetrate already-established markets. U.S. Cellular's current plan to not enter new markets (domestic or otherwise) means that there will be more time and money to dig deeper into its existing markets. However, many of these existing markets (like Chicago and St. Louis) have already been penetrated by larger carriers, putting U.S. Cellular at a great disadvantage. However, a loyal customer base and dominance in relatively uncontested rural markets keeps U.S. Cellular competitive, even against the industry giants.

Company Overview

With 6.1 million customers in 26 states, United States Cellular is the eighth-largest cellular provider in the U.S., and a relatively small player in a highly competitive market.[1] Based in Chicago and concentrated primarily in the Midwest, the company has the majority of its subscribers in rural areas and follows a customer-satisfaction approach to mobile phone service.

Business Financials

In 2009, USM earned a total of $4.21 billion in total revenues. This was a decline from its 2008 total revenues of 4.24 billion. However, despite the decrease in revenues USM was able to increase its net income. Between 2008 and 2009, USM's net income increased from $33 million in 2009 to $238 million in 2009.

Business Segments

United States Cellular divides its revenues into two categories.

Equipment

This category refers to the mobile hardware sold by the company. In addition to mobile phones, this category also includes accessories like prepaid phones and headsets.

Service

The bulk of the company's revenue comes from its subscription plans; customers receive a limited number of minutes and data transmission based on how much they pay a month, paying extra for using extra. U.S. Cellular offers plans with voice and data transmission, but does not appear to offer video services; the company rolled out its data services much later than its competitors and is thus behind in this market.

Customer-Focus Strategy

U.S. Cellular operates on a very strong customer-satisfaction strategy. With a number of service plans, different content and accessory options, and extensive customer-service resources, the company has created a loyal customer base with a low turnover. U.S. Cellular's churn rate has been under 2%, putting it on par with its largest competitors Verizon (1.1%) and AT&T (1.8%), and ahead of Sprint (2.7%) and T-Mobile (2.9%).

Focus on Existing Markets

The company is not expected to expand into new markets--perhaps a good move, considering the $1 billion debt incurred in recent years. This indicates a desire to focus on maximizing subscribers in existing markets through advertising and other marketing tactics. Stopping new market entry allows the company to focus on maximizing existing revenue bases in the present while cutting expansion costs. Without new infrastructure investment, however, future subscription growth could lag, putting the company's longer-run income rates at risk. To try to compensate, U.S. Cellular has entered federal biddings for wireless spectrum, in which it will bid to the FCC against other carriers for the right to broadcast its wireless signal in areas it has not penetrated. This move signals a continued interest in long-term expansion.

Trends and Forces

U.S. Cellular's Majority Shareholders Have the Power

About 80% of U.S. Cellular (95% of voting power) is owned by Telephone and Data Systems (TDS), a mid-sized telecommunications company controlled primarily by the Carlson family, exposing all of U.S. Cellular to relatively power-concentrated decisions. TDS's financial status also affects U.S. Cellular's, potentially impacting the company's spending, revenues, and profit distribution. While the actions of the Carlson family could damage the income of the company as well as of other investors (for example, if they were to vote to invest in dead markets), the majority ownership of TDS does provide a cushion for U.S. Cellular to lie upon: finding investment funds will probably never be an issue.

VoIP from Internet-Enabled Phones is Hiding Around the Corner

VoIP is a potential threat to all major cellular carriers. Phones gaining the ability to make free calls over WiFi connections means that consumers can save their phone minutes when in hotspots. T-Mobile, for example, recently released a phone with the ability to transition from cellular coverage to internet coverage seamlessly when the phone enters a WiFi hotspot. Users can make phone calls in a hotspot without using up minutes, making T-Mobile plans much more attractive; furthermore, T-Mobile has HotSpots in such diverse locations as Starbucks, Borders, and FedEx Kinko's. Since offering a free wireless router with its internet plan, T-Mobile has gained an aggressive first-mover advantage; it won't be long before other large carriers jump on the bandwagon. But for VoIP services to really benefit a carrier, that carrier must offer WiFi services of its own. Verizon, AT&T, and Sprint already have their own 3G broadband access plans, and so will be able to sell internet subscriptions to make up for the loss of cellular subscriptions. U.S. Cellular, however, does not have this ability.

VoIP is especially dangerous to U.S. Cellular because the company is historically late on releasing new technologies because of its limited markets and rural subscriber majority. U.S. Cellular is also owned by TDS, a company that is primarily a land-line provider. VoIP is a major threat to land-line companies because faster internet connections and the evolution of 3G triple-play technology is making it more cost-efficient for households to cut their home phone plans, pay for high-speed internet, and use VoIP services like Skype. Threats to TDS are threats to U.S. Cellular because TDS has direct control over TDS, its actions, and its financial assets.

Shifting Mobile Phone Uses Could Hurt Late-Entry Carriers

Mobile phones used to be primarily for voice applications: phone calls, voice messaging, and so on. Now, as more powerful telecommunications infrastructure like fiber optic cabling and new 3G wireless technology allows faster, higher bandwidth transmissions, mobile phones can be used for all kinds of communications.

  • Triple play technology is a 3G outgrowth consisting of the ability to send voice, data, and video transmissions siultaneously. Currently, few (if any) mobile carriers provide triple play services because of the difficulty of streaming video over current wireless infrastructure.
  • Data transmissions, however, is already a fast-growing market. Data transmissions include text messages, ringtones, pictures, and the internet, and add a new dimension of convenient accessibility to traditional voice communications while allowing mobile carriers to charge for the amount of data transferred.
    • Mobile customers snapped up service plans from the first carriers to offer data services; consumers who didn't go with data-ready plans didn't need the ability to send data, and so when late-entry players entered the market with their own data plans, the majority of consumers who would have purchased said plans already had switched to other carriers.

U.S. Cellular is Late in the Data Game

U.S. Cellular could have benefited from the shifting uses of mobile phones had it entered the data service market early and taken advantage of the new demand; however, the company released its data services after its larger competitors did, and so only has about 5% of company revenues stemming from data. With its larger competitors already entrenched in the market, it is unlikely that the company will get much more penetration in the high-growth, high-profit data market.

Competition

The cellular carrier market is a highly competitive one, with major players including Verizon, AT&T, Alltel, and Sprint.

U.S. Cellular is not well positioned in comparison to its competitors. Historically, the majority of its markets were in rural communities, where most subscribers tended to favor the most inexpensive and basic plans, depriving U.S. Cellular of the more profitable added-value voice and data services. Thus, rural ARPUs ("Average Revenue Per User") are usually lower than urban ARPUs, making each rural subscriber less profitable to the company on average than each urban subscriber.

Because big telecom companies tended to stay out of smaller rural communities, U.S. Cellular was relatively insulated from competition; however, despite U.S. Cellular's rural strength, the limited infrastructure in rural areas and the company's inability to generate an economy of scale advantage combine to keep profitability down.

References

  1. 1.0 1.1 USM 10-K 2009 Item 1 Pg. 2
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