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US Cellular promises cell upgrades without contract

* Customers would not need to renew after first contract

* Customers could collect points for early upgrades

* Sees lower churn, boost to revenue in coming quarters

NEW YORK, Sept 29 (Reuters) - US Cellular Corp USM.N aims to boost subscriber growth by 10 percent and improve customer loyalty with an unusual new option promising more frequent cellphone upgrades and removing requirements for contract renewals every two years.

The No. 6 U.S. mobile service hopes to stand out from bigger rivals that typically subsidize phones for customers who sign a two-year contract, which they have to renew the next time they upgrade their phone.

Instead of contract renewals, U.S. Cellular hopes its new so-called Belief Project points system will convince its customers to stay long after their initial contract expires.

The program, due to launch on Oct 1, is similar to airmiles or retailers like coffee shops that keep customers coming back by giving them a free beverage after they have earned points through purchases.

U.S. Cellular customers will put points toward a discounted early phone upgrade or toward avoiding overage fees when customers talk longer than their service plan allows per month.

Analyst James Brehm of Frost & Sullivan said the program may cause the country's biggest carriers AT&T Inc T.N and Verizon Wireless, a venture of Verizon Communications VZ.N and Vodafone Group Plc VOD.L, to follow suit.

“It looks like something that could change the way some of the U.S. service providers do business,” said Brehm. “Right now customers stay with providers because they have to, not because they want to.”

There is a risk that customers will take the subsidized phone and switch to another provider before they have been with U.S. Cellular long enough for it to recoup its investment.

But Chief Executive Mary Dillon said this would not happen as the points are incentives to stay.

“If they were to leave us they’d have to sign a new contract somewhere else.” Dillon said in a telephone interview. “Our prediction is they’ll actually stay.”

Dillon also hopes some will upgrade their service to plans with higher monthly fees because these plans offer more loyalty points in addition to more calling minutes or mobile browsing.

For example, customers of the company’s highest priced plan, $109 per month, would be able to get phone upgrades several months earlier than users of its $69.99 a month plan.

The company said it expected the project to increase new customers by at least 10 percent and to reduce its customer cancellations or churn rate, currently among the lowest in the industry at 1.4 percent.

Dillon said she also expects average revenue per user and profits to increase as new customers and existing customers sign up for more pricey plans.

“Over multiple quarters, we expect to see this happen,” said Dillon, noting that it would take time for investors to see the resulting change in U.S. Cellular’s numbers. (Reporting by Sinead Carew)

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