As U.S. Cellular preps for LTE it sees data growth but subscriber declines

U.S. Cellular performed well financially in the second quarter, boosting revenues and profits, but the Tier II operator continued to lose customers, recording a net loss of 58,000 retail subscribers. U.S. Cellular also experienced what has become a common trend among all operators outside of AT&T and Verizon Wireless: it saw a big migration of customers to smartphones and high-value data plans, while experiencing an overall dip in contract customers.

In most cases, those contract losses are accompanied by an increase in prepaid customers as customers flee to lower-cost and lower-commitment plans; but U.S. Cellular lost 17,000 prepaid customers as well 41,000 postpaid subscribers. Prepaid has never been a big U.S. Cellular focus, though, as 95% of its retail paid is on contract.

While its customer base may be shrinking, the shift in postpaid customers to smartphones in data is making its remaining customers more valuable. Postpaid average revenue per unit (ARPU) increased $1.29 year over year to $51.84 a month as a direct results of growing smartphone sales. Smartphones and even U.S. Cellular’s first connected tablets accounted for 39.6% of all new devices sold, though not quite the 42% of sales for which smartphones were responsible in the first quarter. Those new Android and BlackBerry device sales, however, now give U.S. Cellular 1.29 million smartphone customers, 23% of its 5.64 million total retail subscribers.

U.S. Cellular has signed up 2.3 million subscribers to its Belief Project plans, which reward customers who stay beyond their contracts with phone upgrades and discounts. Those plans are helping to drive the operator’s subscriber base toward smartphones and other data devices, CEO Mary Dillon said on U.S. Cellular’s earnings call today. “As more customers migrate to our Belief plans they’re choosing more data packages which leads to higher ARPU,” she said.

The operator also plans to introduce tiered data plans for smartphones, which will allow it to create cheaper—though capped—plans, which will drive more customers to smartphones. Carrier officials also cited LTE as a major driver for driving cost of data, which would further increase the flow to smartphones and mobile data plans.

U.S. Cellular also grew its CDMA footprint in Q2, boosting the number of towers in service 5% to 7700. Though U.S. Cellular is deploying a long-term evolution (LTE) network due to increased data demands (CP: U.S. Cellular fast-tracks LTE), it is also investing in its EV-DO network to address the immediate 3G traffic surge. Dillon said the operator’s LTE development is on track to meet its November launch target. U.S. Cellular plans to have LTE up in 24 small and mid-sized markets in Iowa, Maine, North Carolina and Wisconsin, covering 25% to 30% of its subscriber base. Dillon added that U.S. Cellular is working closely with device vendors and plans to have an LTE smartphone available to customers by the end of the year.