USM Receives FCC Funding

United States Cellular Corporation (USM - Analyst Report) – the sixth largest wireless telecom operator in the U.S., received funds worth $40.1 million from Federal Communications Commission (FCC) as a part of FCC’s Mobility Auction 901 plan.

This funding, which also forms a part of Broadband Stimulus Program of the U.S. government will allow U.S. Cellular to provide broadband service to rural areas in the U.S. where it operates. The company will cover 10 states including Illinois, Iowa, Maine, North Carolina, Oklahoma, Tennessee, Virginia, Washington, West Virginia and Wisconsin where it will be offering its wireless services.

U.S. Cellular is already a part of American Recovery and Reinvestment Act and Universal Service Fund (USF) program, which provides government grant to the U.S. telecom carriers to offer wireless services to rural areas in the country. The company also receives $160 million annually from USF as part of internet expansion plan in rural areas. Accordingly, we believe that continuous funding from the U.S. government will help the company expand its rural wireless service going forward.

U.S. Cellular continues to invest in constructing new cell sites, increasing capacity in existing cell sites and switches, upgrading technology, developing new and enhancing existing office systems. Moreover, the company also completed a spectrum swap with Verizon Communications Inc. (VZ - Analyst Report) in September last year that provided U.S. Cellular with eighteen 700 MHz spectrum licenses, thereby supporting its LTE deployment strategy across the U.S.

Although these developments, over the long haul are envisioned to be accretive to the company’s profitability, we apprehend that heavy capital expenditures may prove detrimental for its financial position in the near term. Furthermore, a competitive market, intense pricing and regulatory pressures can further forestall the company’s near-term profitability.

We have a long-term Neutral recommendation on U.S. Cellular Corporation. Nevertheless, currently, the stock holds a Zacks #2 Rank, implying a short-term Buy rating.