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John Rooney of U.S. Cellular Corp.: Riches in niches

U.S. Cellular has kept up with giant national phone carriers by focusing on smaller markets and excelling at service. Yet that may not protect it from the great telecom consolidation.

John Rooney lacks telephone etiquette. The CEO of regional wireless carrier U.S. Cellular Corp. can be blunt about competitors, investors and regulators.

Rooney blasts Wall Street analysts who contend that Chicago-based U.S. Cellular can't survive in a rapidly consolidating industry dominated by national behemoths. He's dismissive of those giants, most of which are descendants of Bell-era regional phone monopolies. They "wouldn't know a customer if it came up and bit them in the nose," says the feisty Chicago native. And he lets out a virtual war whoop at the mention of the Sarbanes-Oxley Act, the financial markets reform legislation, which he views as outrageously costly for smaller and midsize public companies like U.S. Cellular.

Rooney isn't shooting from the lip: His opinions are hard-won. The 60-year-old Loyola University Chicago MBA has served as treasurer of three other public companies, including Firestone Tire & Rubber and Ameritech; he knows financial markets, too, having spent five years as a credit analyst at the Federal Reserve Bank of Chicago. And as boss of U.S. Cellular for the past four years, he has defied long odds. His company has outperformed larger rivals by luring away their frustrated customers with more attentive service. Annual revenue has nearly doubled on Rooney's watch, to $2.4 billion in 2003. Profits last year were $60.8 million, compared with a $14.3 million loss in 2002 that resulted in part from expenses associated with entering the Chicago market. U.S. Cellular's share price has nearly doubled over the past 12 months, to roughly $40, just shy of where it was when Rooney took over in April 2000, as the technology and telecom stock bubble was bursting.

But is calling time running out for U.S. Cellular as an independent company? After all, telecom consolidation proceeds apace, most recently with the auction of AT&T Wireless Services to Cingular Wireless. Might U.S. Cellular, 82 percent owned by diversified telecom carrier Telephone and Data Systems, be snapped up by a giant wireless operator?

Rooney isn't eager to sell out. He continues to grow U.S. Cellular by moving into new markets, mostly small and midsize Midwestern cities. The company in 2002 spent $610 mil- lion to buy Chicago carrier PrimeCo.

Rooney spoke recently with Institutional Investor Senior Writer Justin Schack.

Institutional Investor: Since becoming CEO you've sought to distinguish U.S. Cellular from what you call the "big gorillas" in wireless by focusing on smaller markets. Can you still rely on that strategy?

Rooney: In addition to getting service right, we also wanted to rationalize our footprint. So while we have expanded into Chicago, northern Indiana, Nebraska and Maine, we have disposed of operations in south Texas, north Florida and south Georgia. This year we're going to be opening up in Oklahoma City. We've been adding to those clusters of markets that are the most strategically important to us. But I've said it in the past, and I'll say it again: We have no aspiration to be a national player.

How long can you remain independent in a consolidating industry?

There's been a constant skepticism emanating from investors and analysts that even a properly focused regional company could make it. I always thought that was unfair. For almost four years now, we've been confounding that skepticism. We've said, "Here's what we're going to do," and we've gone out and done it. We feel very strongly that we can maintain ourselves as a very successful, independent regional carrier because of our focus on customers.

Is that a lasting marketing advantage? Couldn't your larger rivals conclude that what you've done with customer service works and change their ways?

As the industry matures, a lot of suppliers are starting to talk about customer focus and retention. But it takes a long time to change that focus and the culture of a company. In our case, being small was an advantage. I don't think there's anybody at U.S. Cellular today whom I have not met personally. My leadership team and I have spent a lot of time coaching people on the way we want to treat our customers. Our culture says that the people we select to talk to our customers are the most important people in the company.

And your bigger competitors will never be able to think that way?

The larger carriers can't get there because the whole thing with them is scale. Some of them are now talking about offshoring customer service. When you get right down to it, they're all offshoots of Bell companies, and those guys wouldn't know a customer if it came up and bit them in the nose. All this shows up in our churn rate [the percentage of customers leaving for another carrier], which in the fourth quarter was 1.4 percent. It doesn't get much better than that. And as we've gone to wireless number portability, we're getting more "port-ins" than "port-outs."

How is your service different?

First of all, our people are well-trained in solving customers' needs. One of the basic measurements we have is one-call resolution. You only want the customer to have to make one call. We might not solve it on that call if it's a complex issue, but we'll get back to the customer right away. We measure customer satisfaction at our call centers monthly. Anybody who calls in is surveyed as to how that call went. We do the same thing in our stores. We make sure that they have the opportunity to tell us what they think.

What's important besides service?

We also have products that work as advertised. When we rolled out Easyedge [a wireless service featuring advanced entertainment and communications options that was unveiled last year], we waited until it was ready. We didn't go out like some of the other carriers did with garbage and expect customers to eat it. And Easyedge has been a major success. We gave all our associates free Easyedge handsets and downloads so that they would have fun with it and be enthusiastic with customers about the product.

How has the Sarbanes-Oxley Act affected your business?

Uhhh! It's a big fat pain in the tail. It's one of these things where the innocent get thrown in the slammer with the guilty. And for a company our size, it's probably worse than it is for a larger company. For Verizon [Communications] or Cingular to have 40 accountants following Sarbanes-Oxley, that's spitting in Lake Michigan in comparison to their total staff. But for us it's a major expenditure of both resources and money. We don't have anything to hide. We've been a very transparent company. But boy, you just become paranoid about your reporting requirements and everything else, because what one person says is an innocent oversight, another person says is deliberate malfeasance. I mean, being a chief executive officer today, sometimes I go home at night and wonder whether it's worth the effort.

Is it?

Yes. The rewards are significant, and we do have a good company that has very good controls. Ethics is a very important part of the way we run the business, so I'm blessed from that standpoint. For us, it hasn't been a question of changing the culture. It's just going through all the bureaucratic hurdles.

How costly are those hurdles for you?

This new requirement that we document all our internal control systems? That's going to be a lot of money. We're still evaluating how much. But it cost us $50 million to comply with wireless-number portability. It cost us a lot to do e-911 service. It's just another one of those things that drags your attention away from the customer.

Are you pursuing acquisitions to move into new markets?

Our strategy is to add to our footprint in a way that maximizes the performance of the whole group. Going to Chicago, for example, also solidified our presence in Wisconsin, Iowa, Missouri and the surrounding area, because people travel to Chicago or call people there. That was a very positive move, and we're looking for more. On the other hand, we want to play within ourselves and not take on something that we can't excel at.

Your industry keeps on consolidating. Would you sell U.S. Cellular?

I'm not the guy that would consider it. The company is heavily owned by TDS, and they would make that decision. As of right now and as far as I know, there is no interest in selling. I'm not advising them to do that. But I've worked in industry long enough that I've had three companies acquired out from under me. So I know the realities of life. If somebody decides they got an offer they can't refuse, I'm sure that the TDS board would give it consideration, and so would our board.

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