U.S. Cellular Sticks to the Plan

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U.S. Cellular (NYSE: USM) is sticking with its network investment plans despite 2Q20 service revenues and total retail connections both being down one percent on a quarterly and annual basis.

At the same time, COVID-19 impacts lowered wireless device sales and prompted work-from-home activity leading to reduced operating costs for the quarter. As such, adjusted operating income and adjusted EBITDA grew 11 percent and 9 percent, respectively, and net income before taxes was up 9 percent, year-to-year.

Despite a flat top line, USM is executing its network enhancement plans.

The company reiterated its full-year 2020 guidance for capital expenditures of $850-950 million. The projected $900 million midpoint is up 27 percent compared to $710 million spent in 2019. 

Roughly 45 percent of 2020 capex is allocated to 5G 600 MHz and millimeter wave deployments with 55 percent going to 4G VoLTE deployments and capacity enhancements, and network operations and back office systems upgrades.

For 2Q20, capex was $168 million, down 29 percent from $236 million in 1Q20 and down 14 percent from $195 million in 2Q19. However, USM’s capex 1H20 totaled $404 million, up 36 percent over $292 million spent in 1H19.

Capital intensity (capex divided by service revenues) for 1H20 was 27 percent indicating a high level of network expansion. 

To wit, the company installed 95 new cell sites for a total of 6,673. and built 42 new towers in 1H20. With 4,208 owned towers at the end of 2Q20, USM is the fifth largest tower company in the country.

Here’s the key point: USM burned through just 45 percent of its 2020 budget at mid-year. Expect a big capex ramp-up through year-end.

In 1H20, the company completed Phase 1 of its 5G multi-year buildout in parts of Iowa and Wisconsin. Initial 5G deployments are on its 600 MHz spectrum using Ericsson and Nokia equipment.

During the company’s 2Q20 earnings call, Mike Irizarry, USM EVP & CTO, commented: “We have been very pleased with the performance of Phase 1. Customers are receiving an improved customer experience; … 5G deployment improves average and peak speeds for our 5G and our 4G customers.

In addition to an improved customer experience and new revenue opportunities, we expect 5G to carry traffic more efficiently, improving the cost to deliver a bit. And this efficiency enables us to get the most out of our spectrum portfolio.”

Recently announced Phase 2 will commence in 2H20. The company will deploy 5G on 600 MHz in parts of 11 states in the West (California, Oregon, Washington), the Midwest (Oklahoma, Texas) and the East (Maine, New Hampshire, Maryland, West Virginia, Virginia, North Carolina) covering about 10 million POPs. 

With network equipment supplied by Ericsson, Nokia and Samsung, USM is expanding the number of available 5G smartphones, connected devices and IoT solutions.

USM owns a total of 625 average MHz in 24, 28 and 39 GHz mmW bands. The company will begin deploying this mmW spectrum in 2021 to improve speed and capacity in its denser populated markets. Moreover, it is planning field trials using mmW in fixed wireless applications in select markets later in the year.

The company sees new revenue opportunities with mmW including fixed wireless to monetize excess capacity. For instance, it can use fixed wireless to enable customers with high-speed Internet connections in areas where cable does not exist or has limited presence.

Irizarry confirmed: “[We] gave the guidance for the year. We are going to stick to that. Our initiatives, VoLTE and 5G, we are sticking to the plan. We are on track and fully expect to complete those as we stated earlier in the year.”

By John Celentano, Inside Towers Business Editor

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