UScellular Ramping for Growth

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UScellular (NYSE: USM) is steadily modernizing its wireless infrastructure in the small town and rural markets that it serves. The company’s network covers over 31 million people in its 21-state operating area. It reported 5.0 million postpaid and prepaid phones and device connections, at year-end 2020.

UScellular worked through the pandemic. It ramped up its network investment in 2020, upgrading and adding cell sites to support greater mobile data demand, installing 5G, and growing IoT applications.

Service revenues grew slowly to $3.1 billion, up 1 percent on a year-over-year basis, with small churn on both devices and connections.

Capital expenditures in 2020 totaled $940 million, the highest in the company’s history. Capex was up 32 percent over the $710 million in 2019. With that high level of network investment, UScellular’s capital intensity (capex/service revenue) hit 31 percent compared to 24 percent the year before.  

Since 2016, UScellular’s network capex has grown at a 21 percent CAGR as the company maintains its high-quality regional network on par with the Tier 1 mobile network operators with whom it has roaming agreements.

Network investment grew steadily throughout the year. Spending dipped in 2Q when COVID-19 first hit but increased each quarter as the company adjusted. The $320 million in 4Q accounted for one-third of the full-year capex. 

For 2021, the company’s mid-point guidance for wireless service revenues is up 1 percent but it is trimming capex by 12 percent to $875 million. The decline is due mainly to the VoLTE implementation program completion in 2020, and an amount of 2021 capex brought forward into 2020 to take advantage of a tax credit.

That guidance still shows a high level of capital intensity at 27 percent. Of the $875 million for 2021, roughly 55 percent is allocated to 5G, 10 percent for capacity expansion at existing sites, another 20 percent for network operations, and around 15 percent for corporate facilities.

The company added 219 cell sites in 2020 reaching nearly 6,800, up 3 percent from roughly 6,600 at year-end 2019.

Its tower base grew by 105 locations to 4,271 at year-end. UScellular’s towers support 63 percent of its total cell sites with balance on other leased structures. Note that UScellular is one of the few MNOs that still owns towers. In fact, it is marketing co-location space on its towers to other wireless service providers, Enterprise networks and government agencies. The Towers business unit reported nearly 1,900 co-locators and generated $77 million in site rental revenues in 2020.

The company insists that control of its towers is important. It says it can make site changes and modifications at no additional costs. As valuable infrastructure assets, selling towers is a financing option if needed. With the help of an outside marketing firm, its 4Q20 leasing revenues grew 9 percent on a YoY basis.

UScellular has a comprehensive spectrum portfolio for both 4G LTE and 5G. In low band, UScellular owns 10 MHz of 600 MHz and 12 MHz of 700 MHz with access to another 12 MHz of 700 MHz through a partnership with King Street Wireless. The company owns 11 MHz of AWS (1700/2100 MHz) mid band spectrum and can tap another 10 MHz through another partner, Advantage Spectrum.

In a strategic move to bolster its mid-band spectrum, UScellular paid nearly $14 million in the 3.5 GHz CBRS auction for 243 Priority Access Licenses covering 80 counties in its operating area.

Moreover, the company owns significant high band millimeter wave spectrum with 100 MHz of 24 GHz, 425 MHz of 28 GHz and 100 MHz of 39 GHz frequencies. UScellular has contracted with Ericsson to supply 5G New Radio hardware and software for 24, 28 and 39 GHz. Nokia also supplies UScellular with 4G LTE and 5G network equipment.

UScellular launched its multi-year 5G mmW deployment plan in 2020. Commercial service will begin in 2021.

5G mmW is important for the company because it both enhances mobile broadband services, and it can be used in fixed wireless access applications to deliver fiber-like speeds in areas with limited high-speed broadband options. UScellular has 5G FWA field trials underway in three markets.

In addition, Ericsson will supply the company with products and services for 3.5 GHz CBRS mid-band deployments.

UScellular is optimistic about its future. “Our network modernization program and investments in 5G continued [in 2020],” comments Laurent (LT) Therivel, UScellular President and CEO. “Connecting our customers, especially in underserved areas, with the highest-quality network is one of our top priorities and remains a key competitive differentiator. We will be focused on market share expansion, ramping up business opportunities that utilize 5G and IoT, enhancing our digital experience, and continuing our network modernization programs.”

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