Nov 7 - Standard & Poor's Ratings Services said today that its 'BBB'
corporate credit rating and negative rating outlook on Chicago-based diversified
telecommunications services provider Telephone and Data Systems Inc.
(TDS) and its subsidiary United States Cellular Corp. are unaffected by
the announcement that U.S. Cellular will sell certain of its wireless markets to
Sprint Nextel Corp. for $480 million. The markets to be sold, which include
Chicago, St. Louis, central Illinois, and certain Midwest markets, account for
roughly 10% of the company's subscriber base. We view these markets as having
very low penetration by U.S. Cellular, and therefore subject to higher customer
churn and lower profitability. In addition, to date the company has not rolled
out 4G long-term evolution (LTE) in these markets, which would require material
further capital investments with uncertain returns. As a result, we expect the
transaction to minimally affect debt leverage, and could modestly benefit
discretionary cash flow, which we still expect to be negative through at least
The transaction doesn't alter our already "strong" assessment of the company's
liquidity (based on our criteria). Pro forma for the transaction, consolidated
cash balances were slightly north of $1 billion as of Sept. 30, 2012. The
healthy cash balances provide greater flexibility for the company to invest in
its core markets and support its LTE rollout, although we believe there is
also increased potential for shareholder returns. The negative rating outlook,
which indicates a one-third possibility of a downgrade over the next two
years, continues to focus on business fundamentals. The rating could be
pressured if competition at U.S. Cellular intensifies, leading to higher
subscriber losses and depressed EBITDA margins.