U.S. Cellular exiting Chicago market to signal strength elsewhere

Focus on customer service is better served in areas where firm has a stronger base

Two years before U.S. Cellular's 2002 entry into Chicago's wireless carrier fray, Jack Rooney, then its chief executive, said his upstart enterprise would never "be a big gorilla" but rather "a little chimpanzee that runs around stealing bananas and having a lot of fun."

It turned out there weren't enough bananas in this particular jungle, and fun doesn't do much for investors.

So monkey see, monkey go. Its corporate headquarters will remain on the city's Northwest Side. But U.S. Cellular has said it is selling its spectrum and consumers here and in other underperforming markets. Offloading about 10 percent of its customer base to Sprint Nextel sometime next year should enable it to better concentrate on places where it has found more low-hanging fruit.

"Jack was right," Mary Dillon, U.S. Cellular's CEO since 2010, said in an interview. "We're not trying to be the biggest. We're trying to be the best at what we do, and this puts us in a position to continue to do that."

What about Chicago kept U.S. Cellular from being the best here? Its strategy under both Rooney and Dillon has been to stress customer service — "the totality of many things," she said — an area in which it has believed it could outperform rival carriers, particularly lumbering giants such as AT&T and Verizon.

And, according to Consumers Union and others, U.S. Cellular delivered on that promise, even among its customers here. Certainly, some have pined for Apple iPhones and iPads not available through U.S. Cellular, but it offers the popular Samsung Galaxy S III and Galaxy Note II.

The thing about customer service, however, is you have to be a customer to actually appreciate it, which is why it's easier to satisfy customers in markets where it already enjoys a strong base.

That's part of the rationale for continuing to serve 5.2 million or so customers in areas including Joliet and Rockford, Iowa and Wisconsin, where U.S. Cellular is among the top three wireless carriers in market share signal strength, while getting out of places such as Chicago and St. Louis, where Dillon said the company was a late arrival and is "around No. 5" in share.

"For us to be able to have the kind of scale that we need — and that's in all the things that our customers love and need now and in the future — we have to have bigger market positions," she said. "In the most macro way, it's really about that."

Take the cost of upgrading here to a more efficient 4G LTE network, on its way to becoming de rigueur among wireless carriers, for example.

"In Chicago, we would not be able to get the kind of return to justify that investment," said Dillon, who previously was global chief marketing officer and executive vice president at McDonald's. "Believe me, I love Chicago. I'm a Chicagoan. I grew up here. I love this city. I don't think there's anything so different about (this market), except for the fact that the competitiveness of this city is such that we needed to say, 'How can we put our investments in the places where we can get the best return for the future and deliver the great kind of customer experience that people expect and want?'"

It's the gardening paradox of pruning to promote better, stronger growth. Faced with a sluggish, unforgiving economy, some companies with big-fish ambitions are deciding the best bet is to swim in a smaller pond and as lean as possible in hopes of realizing the kind of trends and margins investors often covet.

Glenview-based Illinois Tool Works, whose share price is up more than 25 percent so far this year, has not only pared low-margin operations but shed assets and narrowed its focus, reversing a massive acquisition spree from 2004 to 2008 that added 200 companies to a portfolio that peaked at about 800.

U.S. Cellular's reductions have yet to generate the same enthusiasm among investors, however, even as the $480 million sale of its service in Chicago, St. Louis, parts of Illinois, Indiana, Michigan and Ohio to Sprint promises better margins for its remaining markets spread over 23 states.

A share price drop of almost 11 percent since the announcement may be partly blamed on the paring being paired with third-quarter results that showed its net income from July through September plummeted 43 percent compared with the same stretch in 2011, even though revenue was up 3 percent. But the fact that the move may strengthen U.S. Cellular also may run counter to what some on Wall Street want to see.

"While some look at this as a prelude to selling the whole company, we fear that management may see its resulting structure as more sustainable and continue to fight it out in the very tough wireless market," Philip Cusick of JPMorgan wrote in a note to investors. "We believe that (it) would be worth more broken up than as an operating asset."

Dillon's unapologetic take: "I would say this does absolutely set us up for future continued success."

The transition, pending government approval, is expected to take up to nine months. In time, scaling back U.S. Cellular will mean elimination of about 980 jobs from a national workforce of about 8,400, including roughly 640 jobs in the Chicago area, 160 of them in the city itself. But it will continue to employ more than 1,400 people in the Chicago area, with 860 of them working at corporate headquarters.

"We're going to remain a top 40 Chicago public company," Dillon said. "We absolutely plan to stay committed and involved and visible in the city and really work with the city in terms of opportunities around workforce development."

Calling Chicago home predates its launch of branded service for callers here a decade ago this month following the acquisition of PrimeCo's operations in parts of Illinois a few months earlier for about $610 million. "We live in Chicago, and many of us were born here, so this is something we've wanted for a long time," Rooney said at the time.

"I would not say it was a mistake," Dillon said of trying to compete in Chicago. "I'd say the industry is quite different and as we are focused on how we continue to make sure that U.S. Cellular is profitable and growing in the future, we have to sometimes look at the business at different points in time and make decisions."

Taking care on the way out to avoid the banana peels the 800-pound gorillas leave behind.

philrosenthal@tribune.com

Twitter @phil_rosenthal

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