Description

I wrote up USM about five years ago at a price of $25.00.  Today the stock is $46.  USM reached a high of $104 
in September 2007.   I believe today’s price presents another favorable entry point.  USM may prove to have upside
 of 100% to 150% over the next couple years.  

US Cellular is a regional wireless carrier, with 44 million operating POP’s and 82 million total POP’s.  It has five 
cluster territories concentrated primarily in the central and mid-atlantic states. There is plenty of information in the filings
 regarding their markets and spectrum holdings.  

USM is 82%-owned by TDS (Telephone & Data Systems).   I believe it is highly likely that USM will be sold over
 the next two to three years via either minority shares being purchased by TDS or a sale by TDS of USM to Verizon or 
ATT.   The cellular industry has been undergoing consolidation over the last five years with many regional companies 
being absorbed by national carriers.  Some of the buyouts include: Western Wireless, various Sprint affiliates, Midwest 
Wireless, Rural Cellular and Alltel.  I expect this trend to continue.  Buyout multiples (and private market multiples have 
occurred at 8X to 10X EBITDA.   USM is currently valued at 4.6X EBITDA.   At the low end of the range of 
8X EBITDA, the private market or buyout value of USM ranges from $90 share currently to $125 share three years out. 

 USM may be the best operationally managed cellular carrier in the US.  They are known for having a high quality network
 in the markets they serve and excellent customer service.  The best gauge of this is fact that they have one of the lowest
churn in the industry at 1.4%.  Churn has been trending down over last several years from 1.9% in 1999.  USM’s total 
revenue is currently growing in the high single digits.  Data revenues are growing very fast (40% plus) and should continue
 to provide positive momentum to ARPU with the roll out of EVDO and additional smart-phone offerings including 
Blackberry. 

   

Current Valuation

Shares outstanding:       87.5 million

Share price:                  $46.00

Market cap:                  $4.025 billion

Debt:                            $1.000 billion

EV:                              $5.025 billion

2008 EBITDA: 		$1.100 billion

Historical Results, Projections and Metrics

Other Assets

USM has other assets mainly in form of partnerships and spectrum.   The most significant partnership is a 5.5% LP interest 
in a Los Angeles cellular partnership that generates $1.5 billion in EBITDA (Airtouch).  The interest has significant value.  
USM is receiving in range of $65 million in cash flow year currently.   I put the value at $300 to $500 million.  They also 
own additional spectrum as evidenced by fact that they cover 82 million POP’s but operate in areas covering 44 million
 POP’s.  I have not included any of the partnerships or spectrum in the above values at it takes into consideration the 
operating business only.  So you might say these assets provide additional upside or cushion.  

Catalyst