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U.S. Cellular, our 82-percent owned wireless business,
and TDS Telecom, our 100-percent owned traditional wireline
business, both made excellent progress in 2003. The strategies
of both business units are predicated on a customer-satisfaction
philosophy. Satisfying our customers is the essence of
our success, and the entire organizations at U.S. Cellular
and TDS Telecom are dedicated to exceeding customer expectations
by providing the highest possible level of service.
U.S. Cellular made great
strides toward enhancing customer satisfaction in 2003.
The company improved its geographic footprint—building
on the major areas it serves and broadening its coverage
and service, with an emphasis on its Midwest markets.
The company also enhanced its wireless network during
the year, the second of its three-year initiative to
deploy Code
Division Multiple Access (CDMA) 1X technology throughout
its markets, making faster progress and at a lower cost
than originally budgeted. In addition, the company added
more than 500 cell sites to its already robust network.
Upgrading the network
paved the way for the successful launch of U.S. Cellular’s
advanced data service, easyedge(SM).
easyedge(SM) provides customers more
than 150 popular and easy-to-use data applications,
such as ringtones, games, news and stock quotes.
U.S. Cellular also effectively
managed the introduction of wireless number portability
(WNP),
an industry-wide legislative mandate that allows customers
to change their service provider while retaining their
existing telephone or cell phone number. Since the introduction
of WNP in November, more customers have been moving to
U.S. Cellular service than away from it. And despite WNP,
U.S. Cellular’s post-pay churn
rate was an impressively low 1.5 percent for 2003,
one of the lowest in the industry—a testimony to
the success of U.S. Cellular’s focus on customer
satisfaction.
Other major accomplishments
in 2003 included converting a third-party billing system,
inherited with the acquisition of the Chicago market,
to U.S. Cellular’s own customer service and billing
system. The conversion not only reduces operating costs
going forward, but it also enhances the level of service
provided to customers in this key market. The company
completed the conversion in less time than normally
required for such a project and with no disruption to
service.
U.S. Cellular’s
operating results for the year reflect the impact of
these and numerous other performance-enhancement initiatives.
The company’s marketing efforts generated 447,000
net new customers for the year. Less the 141,000 customers
in the markets traded to AT&T Wireless, U.S. Cellular’s
customer base grew 7 percent over 2002, helping drive
an 18 percent increase in operating revenues. The company
posted net income of $43 million, or $0.50 per basic
share.
In terms of the telecommunications
industry environment, the long-awaited consolidation
within the wireless segment appears to have begun, which
should serve to improve the overall health of the segment.
While a large number of competitors fosters more choice
for consumers, too many carriers can erode financial
returns and thus the ability and willingness of carriers
to improve existing wireless services and develop new
ones. This could ultimately have a negative impact on
consumers. Our belief is that with fewer national carriers,
there will still be substantial competition, but greater
financial strength for industry participants.
TDS Telecom also had
a good year. Operating
revenues increased 8 percent, aided in great part by a
21 percent growth of the business’s competitive
local exchange carrier (CLEC)
operations. The CLEC operations reached a milestone in
2003 when the sum of their full-year operating income
plus depreciation, amortization and accretion expense
turned positive for the first time. Total TDS Telecom
operating income grew 42 percent.
TDS Telecom delivered successfully
on its strategy to protect and grow its markets by introducing
new products and services, and by promoting a favorable
regulatory environment. TDS Telecom is very focused on
promoting the profitable growth of its businesses and
on addressing the competitive forces facing the wireline
industry. These include wireless substitution, cable modem
and the emerging Voice over Internet Protocol (VoIP)
technology.
TDS Telecom’s Digital
Subscriber Line (DSL)
service is proving to be a highly effective way to retain
current customers and attract new ones. Both the incumbent
local exchange carrier (ILEC
) and CLEC operations offer this popular and fast-growing
high-speed data service in most of their markets. TDS
Telecom’s DSL service has grown considerably, with
total ILEC and CLEC DSL lines increasing 109 percent for
the year—159 percent for the ILEC and 70 percent
for the CLEC. The company continues to improve penetration
of its DSL service, and plans to introduce service in
several new markets in 2004.
Another way TDS Telecom
is incenting customers to maintain and expand their landline
connection is with broader service packages. Service packages
offer the convenience of customizing to customers’
needs and paying for everything with one bill. During
2003, the ILEC business launched Total Talk—a service
package that includes local, long-distance, Internet and
other add-on features. TDS Telecom also offers a package
that includes a satellite-video entertainment option.
While the ILEC wireline
industry is experiencing a decline in access lines, these
new service offerings are helping TDS Telecom stay highly
competitive and increase its ILEC equivalent access lines.
Unlike some of the Regional Bell operating companies,
which suffered declines in access lines in 2003, TDS Telecom’s
ILEC equivalent
access lines increased 1.5 percent, and CLEC equivalent
access lines grew 25 percent for the year.
TDS Telecom continues
to focus on controlling costs. In addition to ongoing
initiatives to streamline its processes, TDS Telecom
implemented a voluntary employee retirement incentive
program late in 2003. This program is expected to reduce
the company’s cost structure by several million
dollars a year in 2004 and beyond, without jeopardizing
the quality of service.
TDS Telecom is considering
the issues and opportunities that VoIP and fiber-to-the-premises
(FTTP)
technologies present. Specific initiatives include conducting
technical trials for VoIP and planning efforts to assess
the costs and benefits of offering FTTP in selected suburban
markets. With its capital-intensive infrastructure requirements,
however, FTTP technology will most likely not be appropriate
for the company’s more rural, spread-out markets
in the near term.
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