With new leadership, a refreshed corporate image, and buoyed by solid profits in 3Q20, United States Cellular Corporation (NYSE: USM) is enthusiastic about its network modernization and 5G build plans.
The Chicago, Illinois-based company operates in parts of 21 states covering 31 million people mainly in small towns and rural communities in the Midwest, mid-Atlantic, Northeast, Pacific Northwest, and northern California. At the end of 3Q20, USM had five million postpaid and prepaid connections.The company reported modest top-line gains. Wireless service revenues reached $775 million, up 3 percent from 2Q20 but flat with 3Q19.
With operating expense reductions and COVID-19-related cost deferrals, however, USM’s year-to-date net income reached $227 million, up 98 percent over $115 million in the first nine months of 2019.
Energized by those results, USM raised its full-year revenue and adjusted EBITDA guidance. It maintained an already raised capital expenditure midpoint guidance of $900 million, a 27 percent jump from the $710 million invested in 2019.
This figure is the highest level in five years and reflects the company’s earnest network investments. Capital intensity for 2020 is 30 percent. Since 2016, USM’s capex has grown at an 11 percent CAGR even as service revenue growth remains flat.
The company claims its network modernization and 5G program remains on track and that it is rolling out 5G relatively aggressively to stay competitive.
Of the total 2020 capex, an estimated 27 percent goes towards modernizing its 4G LTE network by expanding capacity on existing 700 MHz and AWS frequency bands and extending Voice over LTE service to its customer base.
The biggest portion, roughly 45 percent, goes towards 5G deployments.
The company will deploy 5G to cell sites that handle about 50 percent of overall traffic by the end of 2020 with 5G in all markets by the end of 1Q21.
USM is using its low-band 600 MHz spectrum with an average 10 MHz bandwidth for wide area 5G coverage. It is testing 5G in high-band 28 GHz millimeter wave spectrum with an average 425 MHz bandwidth for dense mobile and fixed wireless applications.
Recent extended range 5G mmW tests with Qualcomm and Ericsson showed it can deliver data download speeds of around 100 Mbps over several miles. With that type of performance, USM sees fixed wireless broadband as a primary 5G use case to connect small town and rural communities with fiber-like speeds over wireless in the future.
More than just high-speed connections in these markets, USM foresees 5G use cases such as connected agriculture along with the need for robust connection solutions in healthcare and education brought to light by COVID-19.
To facilitate its multiyear network modernization and 5G rollout, USM believes it must control its towers. By owning towers, it can locate RF equipment on the tower at optimal heights for the coverage it needs while having the operational flexibility to move equipment as it transitions from 4G to 5G.
At the end of 3Q20, USM owned 4,246 towers, making it the fifth largest U.S towerco. USM added 38 towers in the quarter and 123 towers in the past 12 months. These towers support 63 percent of the company’s 6,758 total cell sites with the remainder on leased facilities. USM installed 85 cell sites in 3Q20 and 204 cell sites since 3Q19.
In addition, USM towers support 1,870 co-locators including other carriers, wireless internet service providers, public safety, and industrial users. Tower occupancy averages 1.4 tenants per tower.
The company has no plans to sell those towers. Today, its field technicians can access all towers at any time to make required network improvements. With 5G, USM expects to touch its towers regularly as it improves network quality.
Beyond supporting its network strategy, USM sees value in its tower portfolio as a growing revenue source and financing alternative if needed. Towers currently generate nearly $20 million in quarterly site leasing revenues and tower valuations are high.
“If we’re going to own those towers, well, we’ve got to sweat those assets,” says Laurent Therivel, USM President and CEO. “But at the end of the day, we like the operational flexibility that it gives us and we’re not really eager to sacrifice that just for the sake of the near-term EBITDA multiple.”
USM appointed an executive to develop the tower business and hired a third-party marketing firm to grow tower rental revenues.
By John Celentano, Inside Towers Business Editor
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