U.S. Cellular is not immune to the pressures that have crushed other regional carriers, and its dependence on customer service to retain customers has not been much of a bulwark against the competition.
National carriers offering trendy smartphones and comparable pricing are eating into U.S. Cellular’s high-end customers while discount carriers lure away cash-conscious customers. The challenges have shown up on the company’s balance sheet. Sales growth slowed to 7.5 percent in its third quarter compared with 9.2 percent the previous quarter and 14 percent a year before. Also, the company’s customer base grew just 1.5 percent, to about 6.2 million in 2008, after losing customers in its third quarter.
Don’t blame the economy; blame U.S. Cellular’s better-positioned competitors. Prepaid carrier MetroPCS recently reported first-quarter net additions of more than 684,000, a 51 percent increase over the same period last year. Verizon Wireless blew U.S. Cellular’s tiny 1.5 percent growth rate out of the water last year, growing its customer base about 9 percent on net subscriber additions of 5.8 million.
It’s no surprise that U.S. Cellular is under shareholder pressure to sell given that U.S. Cellular’s growth has slowed to a crawl while other carriers are growing in leaps and bounds. What is surprising is that rumors about new smartphone offerings and a bid on Verizon’s divested Alltel assets seem to indicate the company is defying the odds and digging in its heels. U.S. Cellular could be one of the last regional carriers standing.
The first indications of U.S. Cellular’s strategic bolstering came as rumors emerged that the company was taking part in a private auction of Verizon’s Alltel assets. The segments up for grabs cover about 2.1 million people, with coverage concentrated in the states of Idaho, Montana, North Dakota and South Dakota. It’s not often that these auctions come up, and U.S. Cellular could benefit by snagging a segment in southern Illinois, thereby expanding its footprint in the Chicago region.
Rumors have also appeared on phonearena.com that the company will start sprucing up its line of devices this month with newer, trendier offerings that more easily compete with the selection available from national competitors. In a February interview with Wireless Week, company spokesman Mark Steinkrauss admitted that the company was “in a bit of a catch-up mode” when it came to its handset offerings: “We don’t always have the latest and the greatest, but we don’t think that’s a meaningful hindrance to us.”
At the time, the company planned to expand its existing EV-DO 3G offerings to about 70 percent of its markets by the end of the year. Steinkrauss could not be reached for comment by press time this week, but had not previously mentioned the introduction of new models.
If the rumors are true, the carrier could soon update its HTC Touch offering with the HTC Touch Pro (already available with Sprint and Verizon). It also could add the super-feminine Samsung Gloss to its lineup, a major departure from the company’s historically staid line of handset offerings.
Still, these are just rumors. While the whisperings about the Verizon auction have been widely circulated, the speculation about the new phone offerings has not. The company has made no formal announcements about the Verizon auction or new phone offerings, and it remains to be seen exactly how accurate the gossip is. The only other source to pull from is the leadership history of U.S. Cellular’s parent company, Telephone and Data Systems (TDS).
TDS is a cautious steward and historically has prioritized stability over high-risk growth strategies. It doesn’t really matter if shareholders want the company to sell or not: TDS owns about 82 percent of U.S. Cellular and controls 96 percent of the voting rights. TDS is controlled by the Carlson family, effectively putting U.S. Cellular in the hands of TDS CEO and board chairman LeRoy Carlson.
The Carlsons are known for their patient business strategies. They won’t sell U.S. Cellular until the time is right. And if the rumors are true, that time could be a long way off.