Telephone and Data Systems (TDS) reported first quarter 2011 earnings of 40 cents per share, outpacing the Zacks Consensus Estimate by a penny. However, earnings dropped 11% from 46 cents earned in the year-earlier quarter.
Revenues increased 3% year over year to $1,258.7 million in the reported quarter and was above the Zacks Consensus Estimate of $1,241 million.
Adjusted OBIDA declined to $280.8 million in the reported quarter from $296.8 million in the year-ago quarter.
U.S.Cellular (Wireless)
Revenues from the company’s wireless subsidiary U.S. Cellular Corp. (USM) upped 3% year over year to $1,057.1 million in the first quarter. Service revenues grew 2.1% year over year to $985.1 million (comprising 93% of total wireless revenue) on account of higher roaming revenues, partially offset by lower retail service revenue.
Total service ARPU (average revenue per user) improved to $54.29 from $52.41 in the year-ago quarter on the back of continued demand for smartphones and data usage. Post-paid ARPU increased to $51.21 from $50.70 in the year-ago quarter and churn remained unchanged at 1.4%.
U.S. Cellular lost 39,000 customers in the reported quarter, bringing the total subscriber base to nearly 6.03 million (including retail customers of 5.7 million). Retail customer losses were 22,000 in the post-paid and 9,000 in the prepaid business.
Telephone and Data Systems is making continuous progress in marketing and sales strategies to retain existing and gain potential customers from other wireless carriers.
TDS Telecom (Wireline)
Revenue from the wireline segment nudged up 2% year over year to $198.9 million, as data revenue growth was partly offset by the decline in voice and network access revenue.
In the reported quarter, incumbent local exchange carriers (ILEC) high-speed data customer base grew 6.6% year over year to 231,800. However, ILEC equivalent access lines and physical access lines fell 1.7% and 5.5% to 765,300 and 501,200, respectively.
Competitive local exchange carrier (CLEC) high-speed data customer base and CLEC equivalent access lines also declined to a respective 32,300 and 331,000 from 36,000 and 349,300 in the year-ago quarter.
Liquidity
Telephone and Data Systems exited the first quarter with $592 million of cash and cash equivalents compared with $368.1 million at the end of fiscal 2010. Long-term debt increased to $1,517.2 million from $1,499.9 million at year-end 2010.
The company repurchased $4.7 billion shares and paid approximately $12.2 in dividends during the reported quarter.
Guidance
Telephone and Data Systems reiterated its fiscal 2011 outlook. For the Wireless segment, the company expects service revenue in the range of $4,000–$4,100 million, adjusted OIBDA between $775 million and $875 million and operating income between $185 million and $285 million. Depreciation, amortization and accretion expenses are expected to be approximately $590 million. Capital expenditure budget has been increased from $650 million to $750–$800 million.
For the Wireline segment, the company projected total revenue in the range of $780–$810 million, adjusted OIBDA of $260–$290 million, and operating income of approximately $75–$105 million. Depreciation, amortization and accretion as well as capital expenditures are expected to be approximately $185 million and $175–$200 million, respectively.
Our Analysis
We believe Telephone and Data Systems is well positioned for growth on various competitive offerings, attractive Android-based smartphones sales, bundled and unlimited service plans, the expected launch of LTE services in 2012 as well as exceptional services in the form of “The Belief Project”.
These initiatives are expected to be offset by declining roaming revenue, which may continue to strain wireless service revenue in the upcoming quarters. Further, future free cash flow levels will remain under pressure due to incremental investments in business operations. Competition has intensified further with cable operators offering voice telephony service on high-speed Internet links via cable modems (Voice over Internet Protocol) and other Internet-based service providers contending for customers.
Consequently, we currently have an Underperform rating on Telephone and Data Systems supported by the Zacks #5 (Strong Sell) Rank.
TELEPHONE &DATA (TDS): Free Stock Analysis Report
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