Aggressive promo competition squeezes UScellular’s Q2 postpaid growth

UScellular cited positive momentum for prepaid customer growth in the second quarter but postpaid subscriber metrics took a hit as promotional competition from carriers heated up.

After two quarters in a row of prepaid losses, the carrier added 10,000 net subscribers in the segment. It reported a net loss of 6,000 postpaid connections, including the addition of 6,000 higher-value smartphone subscribers while shedding 7,000 feature phones which bring in less revenue ($20 lower ARPU). It also lost 5,000 connected devices. UScellular ended the quarter with 4.967 million total connections.

Postpaid phone churn was 0.88% in Q2, with total postpaid churn of 1.11% - higher than a year ago.

However average revenue per user (ARPU) grew by about 3% year over year to $47.74 and average revenue per account (ARPA) was up 4% to $125.25, helping to drive higher service revenue.

Speaking Friday on the quarterly earnings call, UScellular CEO Laurent Therivel cited the competitive environment as currently top of mind when it comes to strategic priorities, noting much more competitive promotions, particularly upgrade offers, across the industry.

“We’ve seen some really aggressive promotions out there for both new and existing customers…it had an impact on our postpaid subscriber results for the quarter," he said. And the company doesn’t expect that competition to let up for the remainder of 2021.

AT&T, T-Mobile and Verizon all reported major postpaid phone subscriber gains in the second quarter.

Therivel, who left AT&T to take the helm at the regional carrier last summer, said UScellular is leveraging its regional strategy to test different offers in the market “to help us hone in on the right balance between subscriber growth and profitability.” He reiterated that a benefit of operating in regions that are geographically separate means the carrier can try out various options to see what sticks.

In some markets, UScellular is putting out its own aggressive promotions to drive switching activity, while others are more focused on upgrades. It will continue testing to find the right approach in time for the traditionally busier selling season later this year, he said.

AT&T kicked things off with a big 5G iPhone 12 offer in 2020, and Verizon has been matching on and off with offers of its own. In the near-term, Therivel thinks it makes sense for the industry to be as promotional as it has been, pointing to an environment that’s primed to get 5G phones in customers hands.

“You’ve got a lot of people that are out of contract that have had their devices for much longer,” he commented, saying customers that are not in a contract is up 50% - across the industry – since Covid with a similar increase in the average time customers are holding onto a device. That’s coupled with 5G rollouts, with 5G currently a main attracter for switching.

Aggressive upgrade promotions from UScellular in certain markets brought the benefit of more customers signing on to higher tier price plans, helping boost ARPU.

“For our higher rate price plans we generally have been about in the mid-20 percentile of the customers that select those higher rate plans, that’s up to the mid 40s. So there’s ARPU expansion and that ARPU expansion is the gift that keeps on giving,” he said. “That creates attractive long-term economics once we get through what I believe is relative near-term promotional aggressiveness.”

Interestingly, UScellular doesn’t appear to be feeling much heat from T-Mobile’s much touted 5G expansion into smaller and rural communities.

“T-Mo has made a lot of noise about their expansion into rural areas. We have not seen it,” Therivel said, noting the company tracks market share and its different components and hasn’t seen a change.

He said deploying and monetizing mobile networks, particularly in rural areas is a more difficult challenge than most think – though he’s not taking T-Mobile lightly, calling them “a formidable competitor.”

“But so far what we’re seeing is more marketing than it is network deployment and customer action,” Therivel said.

Other Q2 earnings tidbits:

• UScellular could have a mmWave fixed wireless access product for home internet in the market by 2022 generating profit. It’s encouraged by mmWave FWA trials, with Therivel saying the technology is exceeding expectations – particularly record-setting extended-range mmWave FWA tests in rural areas. On market demand side, he sees consumer desire for alternatives to current providers in the marketplace.

• The CEO sees opportunities for UScellular on both sides of the Dish/AT&T MVNO deal, noting the carrier has coverage where AT&T doesn’t and opportunity for inbound roaming from Dish.

• Inbound roaming revenue decreased by $13 million to $28 million, largely because of Sprint traffic migrating to T-Mobile. Legacy Sprint makes up about 15% of UScellular roaming revenues, which will go away once its fully migrated to T-Mobile.

• Adjusted operating income decreased 7% to $218 million.

• Service revenues increased 3% to $774 million and equipment sales were up 9% to $240 million, with total revenue up 4% to $1.01 billion.

• Retail service revenue increased by $28 million to $686 million, driven by the higher ARPU and increase in average postpaid subscribers.