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U.S. Cellular Passed On iPhone, 'Risks Unacceptable'

Fri, 11/04/2011 - 8:26am
Maisie Ramsay

U.S. Cellular CEO Mary Dillon dropped an interesting bit of information during the company's earnings call this morning. U.S. Cellular was approached by Apple about selling the iPhone, but decided against it.

"We had the option to add the iPhone to our device lineup, but the risks were unacceptable," Dillon said.

When J.P. Morgan analyst Philip Cusick asked Dillon about it later on in the call, she said "it didn't make sense for our business economically."

Cusick's response: "I don't blame you."

Sprint is shelling out a whopping $15.5 billion over the next four years for the iconic device. C Spire Wireless, a regional operator which will begin selling the iPhone on Nov. 11, hasn't said how much it is paying for the smartphone.

U.S. Cellular differentiates itself more by the quality of its customer service than the strength of its device lineup, as evidenced by its customer-centric Belief Project. The iPhone was simply too expensive to be worth the risk for the regional operator, which is struggling to retain its highest paying postpaid customers.

Dillon said the company already has several high-end smartphones in its holiday lineup, including the Motorola Electrify and HTC Hero S, but conceded that competition from the iPhone would be "intense." The iPhone is now available at three of U.S. Cellular's four largest competitors.

U.S. Cellular lost 23,000 net retail customers during the third quarter after the loss of 34,000 postpaid customers was offset by a gain of 11,000 prepaid subscribers. Overall, the company lost 36,000 net customers, bringing its total subscriber base to 5.93 million.

Despite the losses, the company posted a healthy churn rate of 1.5 percent and increased postpaid ARPU to $52.41, from $51.84 last year. Service revenues increased slightly to $1.03 million.

Smartphone customers now comprise 26 percent of the company's postpaid subscribers, from just 12 percent last year. Nearly 40 percent of all devices sold by U.S. Cellular are now smartphones.

In all, U.S. Cellular made $62 million on sales of $1.03 billion.

The company warned it could take a hit from the FCC's recent overhaul of the Universal Service Fund (USF). The company will see a 20 percent annual reduction in legacy support beginning next year. However, that reduction could be offset by reduced rates for intercarrier compensation also laid out in the plan.

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