U.S. Cellular fast-tracks LTE network, deploying Ericsson gear

Facing its own surge in smartphone and adoption and data use, U.S. Cellular (NYSE:USM) is moving up its long-term evolution (LTE) deployment. It now plans to launch LTE in 24 markets covering 25% to 30% of its subscriber base. Ericsson (NASDAQ:ERIC) will be the sole supplier for the first phase of the rollout—giving it yet another U.S. LTE win—though U.S. Cellular may pick a second vendor for the subsequent phases.

The initial deployment of 1250 cell sites will focus on U.S. Cellular’s footprints in Iowa, Wisconsin, eastern North Carolina and Maine, so it isn’t targeting its largest market Chicago just yet. Like Verizon Wireless (NYSE:VZ, NYSE:VOD), U.S. Cellular is rolling out LTE in the 700 MHz band which will give it instant access to Verizon’s growing LTE device ecosystem. As U.S. Cellular also uses CDMA 1X and EV-DO for 2G and 3G, it can use the same smartphones, tablets and broadband modems being designed for Verizon’s network.

U.S. Cellular started its first LTE trials last quarter, but it originally planned to hold off on a commercial launch until 2012 (CP: U.S. Cellular plans LTE trials in 2011, commercial launch in 2012). What changed? U.S. Cellular saw the impact its first Android smartphone had on data usage since its launch in July, chief technology officer Mike Irizarry said. While U.S. Cellular has offered smartphones for years, they were primarily Research in Motion (NASDAQ:RIMM) BlackBerry devices. U.S. Cellular discovered that its Android customers were using four times the data of BlackBerrys and 30 times the data of feature phones, Irizarry said.

Furthermore, Android set off a smartphone boom among the operator’s customers. In Q1 of last year, smartphones accounted for 17% of new device sales. In Q1 they accounted for 43%.

“While we have closely monitored data usage around the industry…we only started to experience this sharp uptake over the last several months as smartphone sales--particularly Android devices--and penetration has spiked,” Irizarry said. “As you can imagine with smartphone adoption moving at such a rapid pace, our analysis has been demonstrating some pretty remarkable forecasts for data usage, and thus our re-evaluation of how quickly we should move with LTE.”

While competitive pressures are also driving the acceleration of U.S. Cellular’s LTE plans, the operator primarily wants to take advantage of the technology’s greater capacity and greater operational efficiencies to meet those new data traffic demands.

“Ten times the speed at half the cost,” Irizarry said. “The cost savings from an earlier LTE deployment are significant as it reduces are need to add EV-DO capacity. And to emphasize, we do not view our LTE spend as an increase in our long-term network plans, but a pull forward of those dollars from future years.”

Though LTE will take pressure off the EV-DO network, Irizarry said U.S. Cellular still plans to invest heavily in its EV-DO network until its LTE footprint is complete. U.S. Cellular plans to introduce eight new smartphones this year, including its first touch-screen BlackBerry, a Windows Phone 7 device and its first Motorola Android phone. Those and its current smartphone subscriber base will continue to tax the network, requiring U.S. Cellular to add 3G capacity.

Irizarry said the Phase I markets were chosen because they minimize the operators investment in legacy technology in those areas. The Phase II launch will follow the same logic, but U.S. Cellular hasn’t yet selected the markets or timing beyond Phase I, Irizarry said. He added that Ericsson was selected in part because of the operator’s long CDMA relationship with the vendor, stemming from its acquisition of Nortel’s CDMA business.

While U.S. Cellular saw big growth in the smartphone segment, it reported an overall loss of 22,000 postpaid subscribers and 9000 prepaid subscribers in Q1. But due to the migration of subscriber base to higher-dollar data plans, its postpaid average revenue per subscriber (ARPU) increased 51 cents year-over-year to $51.21 per month.