US Cellular 2008 Annual Report Download - page 123

United States Cellular Corporation
Management’s Discussion and Analysis of Financial Condition and Results of Operations
United States Cellular Corporation (‘‘U.S. Cellular’’) owns, operates and invests in wireless markets
throughout the United States. U.S. Cellular is an 81%-owned subsidiary of Telephone and Data
Systems, Inc. (‘‘TDS’’).
The following discussion and analysis should be read in conjunction with U.S. Cellular’s audited
consolidated financial statements included herein and the description of U.S. Cellular’s business included
in Item 1 in the U.S. Cellular Annual Report on Form 10-K for the year ended December 31, 2008.
OVERVIEW
The following is a summary of certain selected information contained in the comprehensive
Management’s Discussion and Analysis of Financial Condition and Results of Operations that follows.
The summary overview does not contain all of the information that may be important. You should
carefully read the entire Management’s Discussion and Analysis of Financial Condition and Results of
Operations and not rely solely on the overview.
U.S. Cellular provides wireless telecommunications services to approximately 6.2 million customers in five
geographic market areas in 26 states. As of December 31, 2008, U.S. Cellular owned interests in 239
consolidated wireless markets and operated 6,877 cell sites. U.S. Cellular operates on a customer
satisfaction strategy, seeking to meet customer needs by providing a comprehensive range of wireless
products and services, excellent customer support, and a high-quality network. U.S. Cellular’s business
development strategy is to operate controlling interests in wireless licenses in areas adjacent to or in
proximity to its other wireless licenses, thereby building contiguous operating market areas. U.S. Cellular
believes that operating in contiguous market areas will continue to provide it with certain economies in
its capital and operating costs.
Financial and operating highlights in 2008 included the following:
• Total customers increased 2% year-over-year to 6.2 million at December 31, 2008; net retail customer
additions were 149,000 compared to 333,000 in the prior year;
• The postpay churn rates were 1.5% and 1.4% in 2008 and 2007, respectively. Postpay customers
comprised approximately 87% of U.S. Cellular’s customer base as of December 31, 2008;
• Average monthly service revenue per customer increased 4% year-over-year to $53.23;
• Cash flows from operating activities were $922.8 million, an increase of 7% year-over-year. At
December 31, 2008, cash and cash equivalents totaled $171.0 million and there were no outstanding
borrowings under the revolving credit facility;
• Additions to property, plant and equipment totaled $585.6 million, including expenditures to construct
cell sites, increase capacity in existing cell sites and switches, purchase equipment to expand
Evolution Data Optimized (‘‘EVDO’’) services to additional markets, outfit new and remodel existing
retail stores and continue development and enhancement of U.S. Cellular’s office systems. Total cell
sites in service increased 8% year-over-year to 6,877;
• U.S. Cellular participated in the Federal Communications Commission (‘‘FCC’’) auction of spectrum in
the 700 megahertz band, known as Auction 73, indirectly through its interest in King Street
Wireless, L.P. (‘‘King Street Wireless’’). U.S. Cellular is a limited partner in King Street Wireless. King
Street Wireless was the provisional winning bidder for 152 licenses for an aggregate bid of
$300.5 million, net of its designated entity discount of 25%. The licenses expected to be granted to
King Street Wireless cover areas that overlap or are proximate or contiguous to areas covered by
licenses that U.S. Cellular currently owns, operates and/or consolidates; and
• U.S. Cellular recognized a loss on impairment of licenses of $386.7 million in 2008. The loss is
attributable to further deterioration in the credit and financial markets and the accelerated decline in
the overall economy in the fourth quarter of 2008, which has led to the use of a higher discount rate
when projecting future cash flows and lower than previously projected earnings in the wireless
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