U.S. Cellular Continues to Struggle With Phone Subscriber Losses

U.S. Cellular’s USM fourth-quarter performance was similar to recent trends. The firm continues to suffer from mobile phone subscriber losses while seeing a steady climb in postpaid average revenue per user. The firm also has some momentum behind and a very optimistic outlook for its tower and fixed-wireless businesses, but they remain much too small to overshadow a stagnant mobile business. Margins were under a bit of pressure from a rise in bad debt and promotional expenses, but costs were otherwise well contained. Overall, there was little to change our forecast, and we are maintaining our $28 fair value estimate.

In the fourth quarter, U.S. Cellular lost 20,000 net postpaid phone customers and kept its prepaid phone subscriber base flat. A pickup in involuntary churn in 2022 led to a tougher year of net postpaid phone subscriber losses (109,000, or 2.8% of the base) than we expect will be normal. Management said it has had success with recent promotions, which put more customers under contract and decreased voluntary churn, leading us to believe customer losses will be less severe in 2023. Still, we think U.S. Cellular will have difficulty returning its mobile phone business to subscriber growth, considering its national competitors.

On the positive side, the yearslong climb in postpaid ARPU, which includes all postpaid services, accelerated in 2022 to over 4% growth for the full year after a nearly 1% sequential increase in the fourth quarter, to $50.60 per month. Promotions have helped drive phone customers to higher-tier plans, and the firm is getting a boost from device protection plans. The pricing strength led to year-over-year postpaid service revenue growth of 1% in the fourth quarter and 2% for the full year, despite the phone subscriber losses. Management’s outlook for roughly flat total services revenue in 2023 supports our belief that 2023 will generally have a similar makeup as 2022.