Stiff pricing competition from big players in the market and heavy subsidies on smartphones could restrict United States Cellular Corporation’s (USM) growth, going forward. However, ahead of the fourth quarter earnings release, we expect U.S. Cellular to gain from LTE expansion and smartphone sales, which are likely to drive the bottom line.
In Nov 2014, U.S. Cellular announced that Kyocera Communications’ Ultra-Durable 4G LTE Kyocera DuraForce Smartphone would be available with the carrier from Nov 26. Kyocera's latest tough device is designed to work in rugged environments. To complement this feature, U.S. Cellular will provide DuraForce users with national coverage and a high-quality network.
U.S. Cellular’s top priority involves subscriber additions and churn management. The company has taken a number of strategic actions that will likely accelerate growth in the future, thus enhancing its returns. These strategies include the introduction of a new billing system, continuous rollout of 4G LTE, enhancement of LTE handsets and the completion of various spectrum transactions. The company is also focused on improving cost and profitability by managing data delivery cost and has introduced equipment instalment plans for this purpose.
On the flip side, the company’s high-margin roaming revenues are under pressure, due to lower voice usage and lower roaming rates. While this represents an industry-wide trend, it is likely to impact U.S. Cellular more than its peers, given the company’s strong reliance on roaming fees and pricing factors.
U.S. Cellular exited the third quarter of 2014 with a subscriber base of 4,674,000 compared with 4,875,000 at the end of the year-ago period. Postpaid subscriber base was 4,200,000 against 4,343,000 at the end of the prior-year quarter while the prepaid subscriber tally was 350,000 against 370,000 at the end of the third quarter of 2013.
U.S. Cellular presently has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in this sector include Shenandoah Telecommunications Co. (SHEN), Vonage Holdings Corporation (VG) and Telefónica, S.A. (TEF). Shenandoah Telecommunications and Vonage Holdings sport a Zacks Rank #1 (Strong Buy) whereas Telefónica holds a Zacks Rank #2 (Buy).
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