Telephone & Data Systems Inc.’s (TDS) wireless business is expected to develop on the back of increased handset offerings, shared data plans, equipment financing and the expansion of LTE technology. Continued focus on broadband growth and related acquisitions are expected to increase its market share.
Telephone and Data Systems is experiencing a strong smartphone demand at its wireless wing, U.S. Cellular. Of the total smartphone sales, nearly 85% are 4G devices. Further, the addition of iPhones and other renowned branded phones like Samsung Note 4 are helping drive the company’s revenues higher.
In the third quarter of 2014, iPhones represented nearly 30% of the mobile sales. We believe the long-term higher ARPU (average revenue per user) from smartphone users and the full utilization of LTE network capacity on the back of migration of customers from 3G to 4G networks are expected to mitigate the operating cost headwinds created due to higher subsidies on smartphones.
In Sep 2014, TDS Telecom unveiled its new personal cloud service – younited by F-Secure. The novel product is designed to work on mobile devices and is accessible anywhere. While the launch will result in enhanced market share for Telephone and Data Systems, we believe it will also help the company expand cloud service in the retail segment, beyond the conventional enterprise market. The service shall cost $5.95 per month. Alternately, it can be purchased as part of a money-saving Plus Pack. In addition, TDS customers using its previous Backup Online product will automatically be upgraded to younited.
On the wireline front, Telephone and Data Systems faces competition from incumbent local exchange carriers. Additionally, the company continues to experience decline in access lines owing to wireless substitution and other alternative services. Competition has intensified further as cable operators now offer voice telephony service on high-speed Internet links via cable modems (Voice over Internet Protocol) and other Internet-based service providers also contend for customers. Revenues from the wireline segment declined 2% year over year to $178.1 million. At the end of the reported quarter, the company had 592,600 (down 1.2%) wireline residential customers.
Telephone & Data Systems currently has a Zacks Rank #3 (Hold).
Key Picks in the Sector
Better-ranked stocks in telecommunication sector include Gogo Inc. (GOGO), Cogent Communications Holdings, Inc. (CCOI) and BlackBerry Limited (BBRY). All these stocks hold a Zacks Rank #2 (Buy).
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