US Cellular's Operations Destroying Shareholder Value

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US Cellular lost a total of 25,000 net postpaid phone customers, much worse than the 2,000 loss a year ago. Some of the loss was cushioned by a 23,000 gain in connected devices, which generally generates much lower revenue per device than phones. Postpaid customer churn was flat year over year, but connected devices churn spiked to 2.49% compared with 1.95% a year ago, raising some doubts over how sticky or profitable these customer lines are. US Cellular’s prepaid business was also weak on small net customer gains and flat churn year over year. Average revenue per customer also experienced the heftiest decline in two years. Due to operating deleverage, the firm booked an operating loss, which was around the same range as the operating loss of last year.

Despite a gloomy outlook for 2017, we believe the firm faces no current liquidity issues, with $586 million in cash and $1.6 billion in total debt that is very long-dated. Capital spending in 2017 is projected to be only about $500 million. We continue to believe that the company’s spectrum assets on its balance sheet are carried at a cost significantly below the going rate in recent auctions.

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