U.S. Cellular Near Fair Value

United States Cellular Corp. (USM - Analyst Report) is the 5th largest wireless telecom operator in the U.S. and functions as 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 respectable 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 data revenue in the last quarter.

Positive factors to consider included continued expansion of 3G EVDO network coverage and increased handset capabilities supported by attractive bundled services amid ongoing economic volatility and increased pricing pressure.

However, heavy asset impairment charges negatively impacted the bottom-line. U.S. Cellular expects significant declines in roaming revenue and higher operating expenses due to increased handset subsidies, which are expected to impact margins in 2009. We maintain our Hold rating while reducing the valuation target to $38.50.

Anindya Barman contributed to this report.