US Cellular Shared Connect Plans Bode Well, Competition Rife

On Sep 12, we issued an updated research report on United States Cellular Corp. (NYSE:S) – a subsidiary of Telephone & Data Systems Inc. (NYSE:S) . The company reported strong financial results in the second quarter of 2016 wherein both the top and the bottom line outpaced the Zacks Consensus Estimate.

U.S. Cellular has planned its strategic moves to accelerate subscriber addition and arrest churn. These strategies include the introduction of a new billing system, continuous rollout of 4G LTE, enhancement of LTE handsets, completion of various spectrum transactions and monetization of non-strategic assets. The company is also striving to gain customers from rivals through online promotional plans and offering discounts and unlimited contract buyout on smartphones. Meanwhile, management expects the growing demand for smartphones to support growth in data revenues.

Recent Developments

In Aug 2016, U.S. Cellular launched a new pack of Shared Connect plans which offers more data, larger allotments and new tools to track data usage coupled with unlimited offerings in relation to calling and texting. Customers are also given an option to change their plan as per convenience. The new plan offers 2GB for $30 a month, 4GB for $45 per month, 8GB for $60 a month, 16GB for $80 per month and 24GB for $100 per month. Customers opting for 16GB plans and above will avail unlimited calling and texting facilities to friends, family and businesses in Canada and Mexico and data usage control which will limit the amount of data each account can use. The same is available at $10 per month on plans of 8GB and below and for data usage control services, the customer will be charged $4.99 a month. However, there’s an associated access fee — $20 per line per month – for smartphones, routers and hot spots and $10 for tablets.

Similar Unlimited Offers

U.S.wireless carriers -- T-Mobile US (NYSE:S) and Sprint Corp. (NYSE:S) -- also came up with similar unlimited offerings. T-Mobile launched ‘T-Mobile One’ plan for $70 a month, replacing its prior $95 unlimited plan and Sprint’s ‘Unlimited Freedom’ plan at $60 instead of $75 per month.

The Risks

U.S. Cellular exited the second quarter with cash and cash equivalents of $621 million compared with $715 million at the end of 2015. At second-quarter end, total debt was $1,634 million versus $1,640 million at the end of 2015. The debt-to-capitalization ratio at the end of the reported quarter was 0.31, flat with the end-2015 figure. Although the figures show liquidity, sufficient resources for expansion purposes such as the purchase of spectrum license may not be feasible. This might lead to high levels of borrowing and the company’s liquidity would be affected if it is unable to obtain short or long-term financing on acceptable terms, further pressurizing its cash flow.

Moreover, a highly competitive wireless market, high costs associated with network integration and construction of cell sites, aggressive pricing by larger rivals and ongoing consolidation in the wireless industry through mergers, acquisitions and joint ventures are some of the near-term risks.

U.S. Cellular currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here).

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