Can United States Cellular Ride Higher on Its Spectrum Strategy?

Key Points

• United States Cellular has been selling spectrum, a key telecom asset, over the past year.
• USM stock is up 53% in 2024 so far.
• The company also intends to sell its wireless business to T-Mobile, but regulatory approval is a risk.

United States Cellular Corporation NYSE: USM has seen its share price rise substantially in 2024, up nearly 53%. However, it hasn’t been doing so by massively increasing the number of people on United States Cellular's network. In fact, the company has lost around 96,000 postpaid device subscriptions in 2024.

United States Cellular has employed a unique strategy to increase the value of its shares. It involves spectrum assets and the largest telecom companies in the United States. Let's take a look at this strategy and assess whether United States Cellular can continue to succeed.

Understanding United States Cellular’s Spectrum Strategy

“Spectrum” refers to the radio frequencies used to transmit data wirelessly. To transmit data properly, companies need to use different radio frequencies. If they don't, there will be interference with the signals. Due to this, the Federal Communications Commission has developed a system of spectrum auctioning, which allows companies to purchase exclusive rights to specific frequencies. This system enables multiple networks to operate simultaneously without disrupting one another's signals.

A company can use or sell the right to use a certain radio frequency, which is a “spectrum asset.” The latter is exactly what United States Cellular has been doing. In the past year, it sold billions in spectrum assets to T-Mobile NASDAQ: TMUS, Verizon NYSE: VZ, and AT&T NYSE: T. When United States Cellular sold its spectrum to T-Mobile in May, it also announced T-Mobile would buy all its wireless operations. The deal is expected to close in mid-2025, pending regulatory approval.

Because spectrum is a finite resource and businesses demand it for various activities, it can become very expensive. From 2020 to 2022, the United States auctioned off or assigned over $200 billion in spectrum assets. Even with the massive balance sheets of the giant telecom companies in the United States, they don’t have the cash to buy all that. That means there are opportunities for smaller firms to buy spectrum assets. These assets cannot be replicated. So, if a giant telecom firm needs a particular band to expand its network or offer different services to customers, it's often willing to pay up handsomely.

Because United States Cellular sold its wireless operations to T-Mobile, it no longer needs its remaining spectrum assets and has announced plans to strategically sell them. After the company’s most recent deal with AT&T, United States Cellular now has approximately 30% of the spectrum assets it had before the T-Mobile deal. Approximately 86% of its remaining spectrum is C-Band spectrum.

Diving into C-Band Spectrum: What it Means for United States Cellular

Experts have often considered C-Band spectrum one of the most valuable forms of spectrum. This is because it offers a good middle ground for providing 5G services. C-Band is a mid-band spectrum. It can transfer data at high speed. It also has a solid range and can penetrate barriers like buildings. Higher band spectrums can transfer data faster but travel less far and penetrate buildings less well. This means that a telecom company must build more towers to relay the signal through a certain area, greatly increasing the costs involved.

In 2021, C-Band sold at a record price of $0.876/MHz/pop. However, the most recent reading states that the average price of C-Band was just $0.106/MHz/pop, an 88% drop. Based on recent prices, the company’s C-Band would only be worth around $174 million now. At its all-time high price, it would have been worth around $1.4 billion.

United States Cellular May Need to Rely on Other Catalysts

In comparison to the $2 billion in spectrum sold to AT&T and Verizon, it's hard to see selling more spectrum moving the needle that much for United States Cellular, even if prices recover substantially. Additionally, there is a risk that the deal with T-Mobile does not go through due to antitrust concerns. Approval of the deal would likely send shares higher.

It may come as a surprise to some that merger enforcement actions were down considerably during the Biden Administration compared to the first term of the Trump Administration. United States Cellular could also sell its tower assets, which are reportedly worth billions; that would be a catalyst for shares to ride higher. The two Wall Street analysts who recently released ratings on the stock seem to think one or both catalysts will come to fruition. The price targets are bullish; their average implies a 35% upside in the shares.