US Cellular Calls for Tightening

U.S. Cellular (USM - Analyst Report) is the sixth largest wireless telecom operator in the U.S. and the largest subsidiary of Telephone and Data Systems Inc. (TDS - Analyst Report).

In spite of intense competition following consolidation in the wireless industry, U.S. Cellular's high service standards have helped maintain steady improvement of ARPU (average revenue per user) and low churn rates on a consistent basis. Also, higher usage of data services driven by strong uptake of smartphones boosted profitability in the last quarter.

However, the company reported a decline in total subscriber count due to intense competition and a weak economy. U.S. Cellular expects higher operating expenses which conjures a less optimistic outlook for the early part of 2009.

Given these factors, we maintain our Hold rating while reducing our valuation target as we assess subscriber retention trends and the sustainability of ARPU levels moving forward.

Anindya Barman contributed to this report.

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