On Sep 13, 2013 we retained our Neutral recommendation on
Telephone and Data Systems Inc.
). We remain encouraged by several initiatives taken by the
company including increasing handset offerings and expansion of
LTE technology in the wireless business.
However, higher churn in the post-paid segment, increased
equipment subsidies and investments in network upgrade would
continue to weigh on the company's performance. This
Chicago-based company has a Zacks Rank #3 (Hold).
TDS's Wireless subsidiary
United States Cellular Corporation
) is concentrating on increasing growth in the future and has
taken a number of strategic actions, including introduction of
bundled and unlimited service plans, a new billing system,
deployment of 4G LTE and expansion of distribution channel.
The company also remains optimistic on the 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 high. To tap this opportunity, the company has launched
several new LTE devices and is expected to offer the newly
Expansion into the rapidly developing managed hosting and
cloud service is expected to boost the company's performance
going forward. To support its growth in cloud based service, the
company acquired Vital Support Systems, LLC for $45 million.
Furthermore, to enhance its high-speed broadband and voice
services the company recently acquired Baja Broadband LLC, for
However, cut-throat pricing competition from rivals has
resulted in higher post-paid churn for TDS. Aggressive
distribution and promotional activity of larger rivals also
remain detrimental to the company's subscriber acquisition and
retention abilities. Moreover, higher smartphone subsidies will
continue to weigh on its margins.
TDS continues to experience declines in access lines due to
wireless substitution and other alternative services. Competition
has intensified further as cable operators offer voice telephony
service on high-speed Internet links via cable modems (Voice over
Meanwhile, U.S. Cellular's high-margin roaming revenue remains
under pressure due to 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 negatives force us to maintain a neutral stance on
the wireless carrier.
While remain sidelined on US Cellular, Zacks Ranked #1 (Strong
Hawaiian Holdings Inc.
) looks attractive for the short term.
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