SWAP CEMENTS U.S. CELLULAR REGIONAL STATUS

U.S. Cellular's acquisition of spectrum in the Midwest should help the carrier solidify its position as one of the top regional wireless providers. However, breaking into new markets already served by multiple carriers will be a significant challenge and will not resolve questions about the regional business model.

The TDS-controlled wireless carrier acquired the spectrum last week through a deal with AT&T Wireless in which U.S. Cellular swapped networks serving 141,000 subscribers in Florida and Georgia for spectrum that covers 16.6 million pops, mostly in the Midwest. U.S. Cellular also received $31 million in the deal. Most of the spectrum acquired covers areas adjacent to the company's existing territory, with the rest overlapping markets where U.S. Cellular already provides service.

In its new markets, the carrier will stick to its habit of attracting subscribers with local and regional product offerings, as well as a message of strong customer service, according to Jay Ellison, executive vice president of operations for U.S. Cellular.

While this strategy may be good for entering new markets, U.S. Cellular must differentiate itself through data services to achieve long-term success, said Brent Iadarola, industry analyst with Frost & Sullivan's Mobile Communications Group.

In the carrier's new markets, the demand for generous bucket plans and upcoming wireless data services could put U.S Cellular in a spectrum jam in some areas, he said.

Noting, however, that these new markets would be all-digital builds using untouched spectrum, U.S. Cellular CEO Jack Rooney said spectrum demands shouldn't be a problem for quite some time. “We've got a pure 10 MHz with 1X… that gives us a long way to go,” he said. “If minutes of use gets high enough, you're looking at more spectrum vs. additional cell sites.”

While U.S. Cellular's spectrum acquisition in new markets has generated the most attention, spectrum the carrier gained in its existing markets should help as well, Iadarola said. The additional spectrum will allow U.S. Cellular to offer the same data services that could prove challenging in its new markets.

“You have to be able to compete on pricing for minutes and you need to be able to introduce the more compelling data services that are likely to emerge,” Iadarola said. “With this type of investment, they want to play with the big guys.”

But going up against the big guys may be difficult for U.S. Cellular in the long run, no matter how much spectrum the company has in its Midwest cluster. Given the highly competitive nature of wireless, carriers must be more than regional service providers if they want to survive rounds of future consolidation, said Roger Entner, program manager with The Yankee Group.

“Inevitably you have to be nationwide, or near nationwide,” Entner said.

A number of smaller carriers — including CenturyTel — have already recognized that being a small player among the national giants is a losing proposition and sold off their wireless holdings.

Ellison argued, however, that U.S. Cellular is not looking to make a significant expansion out of the Midwest. But given how the new spectrum fits into U.S. Cellular's footprint, much more of the company's traffic should stay on its own network, thereby improving its bottom line, he said.

“[Our new footprint] has a tremendous amount of activity and a tremendous amount of traffic is going to be on that network,” he said. “There is survivability [in that].”