United States Cellular Corporation (NYSE:USM) Q3 2023 Earnings Call Transcript

I’m pleased that we received access to C band spectrum a few months earlier than planned, and we’re consequently able to further improve our 5G network experience faster than initially anticipated. As mentioned earlier this year, we’ve been upgrading a number of sites so they can be deployed as soon as we receive mid band clearance. So those sites are now operational, and they allow us to bring faster speeds and more capacity to mobile and to our fixed wireless customers. And we’re doing that earlier than we expected. Our mid band deployment is multi-year like all of our deployments. By the end of 2024 almost 50% of our data traffic will be carried on sites that are equipped with mid band. And where we’ve enabled mid band, we’re marketing a 300-megabit fixed wireless product and that’s really competitive in the marketplace.

And bring briefly on average, our fixed wireless subscribers are using about a 170 gigabits per month this year. That’s significantly lower than our peers. However I do expect that our customers’ usage is going to grow as they get access to the upgraded mid band experience. And more of note on network initiatives. We will be shutting down our CDMA network at the beginning of 2024. Team has done a great job migrating the base away from CDMA-dependent devices. Less than 42,000 customers are left and that’s down from 386,000 just 18 months ago. We believe we’re going to continue to see more customers migrate over the next several months. We intend to reform that spectrum to support our LTE network. And we expect to see additional systems operation savings once that CDMA network is fully shut down in 2024.

As always, I want to thank the team for all their hard work and continued dedication. I’ll now turn the call over to Doug Chambers to provide more details on our financial results. Doug?

Douglas Chambers : Thanks LT. Good morning. Let’s start with a review of customer results on Slide 6. Postpaid handset gross additions decreased year-over-year by 23,000, largely due to the intense competitive environment from traditional carriers and MVNOs as well as a decline in the pool of available customers. Correspondingly, postpaid handset net additions were down 16,000. Connected device gross and net additions include fixed wireless subscribers. And as LT mentioned, we continue to see great momentum in fixed wireless. With our base of customers up 57% in the prior year, and up 10% sequentially. Postpaid handsets were decreased year-over-year and increased sequentially. The sequential increase is partially due to seasonality and a decrease in our in-contract customer base.

Also we have been experiencing a positive trend in postpaid handset churn over the past year, due in part to the aggressive device offers to new and existing customers that we maintain from mid-June 2022 through February 2023. Moving to Slide 7, prepaid gross additions declined 10,000 and net prepaid additions decreased 2,000. In terms of gross additions, the overall pool of available customers declined year-over-year, which we believe is partially driven by competitively priced postpaid offerings. Now let’s turn to the financial results starting on Slide 8. Total operating revenues for the third quarter decreased 11%. Consistent with the industry we saw a decline in upgrade rates contributing to the lower equipment sales. Service revenue declined 2% due to a decrease in our average retail subscriber base and roaming revenue.

Inbound roaming revenue declined 53% as a result of negotiating lower rates with other carriers. Note that this decrease in inbound roaming revenue was almost entirely offset by a corresponding decrease in our outbound roaming expense, despite a 58% increase in our off-net data traffic. On the positive side, LT mentioned the increase in postpaid ARPU. This increase was partially driven by increased device protection revenues and favorable plan and product offering mix as a result of customer adoption of a higher value higher, tier plans. We continue to see consistent growth in our highest tiers of unlimited plans. And as of the end of the quarter 46% of our postpaid handset customers are now on these higher tier plans. And that’s up from 38% just one year ago.

Now let’s turn to tower results on Slides 9 and 10. As you can see, the business delivered another strong quarter with 8% revenue growth. Including U.S. fiber sites, our tower tenancy ratio is currently 1.54, up from 1.46, just two years ago. We’ve also added a couple of additional disclosures this quarter and to provide you with insight into both the geographical diversity and carrier composition of our tower portfolio. As we noted last quarter, our towers are well positioned geographically with about 30% of them not having a competing tower within a two-mile radius. And you can see that our tower revenue is well distributed among the large wireless carriers. Next, let’s turn to our quarterly operating performance shown on Slide 11. For this discussion, I will refer to adjusted operating income before depreciation and amortization as adjusted operating income.