On Sep 4, 2013 we maintained our Neutral recommendation on
wireless service provider
United States Cellular Corporation
). We expect the company to register impressive smartphone sales
based on continuous launch of new devices including
) iPhone. However, stiff competition and pricing pressure would
remain detrimental to customer accretion. This Chicago-based
company holds a Zacks Rank #3 (Hold).
We foresee accelerated growth for US Cellular in the future
based on a number of strategic actions, including introduction of
a new billing system, expansion of distribution channel,
deployment of 4G LTE and launch of LTE devices. The company
remains optimistic on growing smartphone demand, which will
support data revenue growth. Additionally, over the near term,
rapid transition of the wireless market from the 3G to 4G LTE
space and the demand for 4G devices are expected to remain
U.S. Cellular has instituted several marketing initiatives
including the introduction of four new bundled services that
offer unlimited Internet and messaging plans with highly coveted
features, at affordable prices. This initiative is expected to
reduce the company's churn going forward.
U.S. Cellular is focused on selling its non-core spectrum and
sold some of its PCS spectrum to Sprint in Nov 2012. Recently,
U.S. Cellular also signed an agreement to sell its non-strategic
spectrum in the Mississippi valley to a wholly owned subsidiary
T-Mobile US Inc.
) for $308.0 million. We believe this transaction will provide it
the liquidity to expand LTE network.
Nevertheless, customer churn remains the primary concern for
U.S. Cellular, and the absence of the iPhone has only aggravated
the problem. Moreover, higher mix of smartphones and higher
subsidies on 4G LTE devices will continue to increase the
Meanwhile, U.S. Cellular's high-margin roaming revenue remains
under pressure based on lower voice usage and lower voice and
data ARPU. High costs associated with network integration and
construction of new cell sites, increasing capacity in existing
cell sites, upgrading wireless technology or spectrum licensing
are also expected to put considerable pressure on the company's
margins. These risks force us to maintain a neutral stance on the
While we remain sidelined on US Cellular, Zacks Ranked #2
) looks attractive for the short term.
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