Feature Article

November 07, 2012

Sprint will Buy Spectrum and Customers from US Cellular to Boost Midwest Coverage

On the same day that AT&T announced it would launch a $14 billion investment in its own wireless and wireline networks, and on a day when U.S. Cellular - the well-managed number five wireless service provider behind Verizon, AT&T, Sprint and T-Mobile in the United States - reported earnings that this time around are not particularly stellar, Sprint and U.S. Cellular reached an agreement for U.S. Cellular to sell a number of its businesses to Sprint.

Sprint will acquire U.S. Cellular's Chicago, St. Louis, central Illinois and three other Midwest markets for $480 million, and will also assume some liabilities. The sale for U.S. Cellular is intended to streamline its overall business operations and to allow it to specifically increase its focus on its stronger markets. The sale includes 20 MHz of PCS spectrum in the 1900 MHz band in various Midwest markets and about 585,000 customers, or about 10 percent of U.S. Cellular's total customer base. The markets included in the deal generated service revenue of about $340 million and incurred an operating loss, according to U.S. Cellular.

Chief Executive Mary Dillon points out, "Exiting these markets enables us to play to our strengths in markets where we have higher penetration and where we can effectively sharpen our proven strategy to differentiate the U.S. Cellular customer experience from other wireless carriers. Going forward, we will continue to serve more than 5.2 million customers with the unparalleled experience they expect from U.S. Cellular."

U.S. Cellular's total revenues for the quarter grew to $1.14 billion from $1.11 billion last year. Five analysts had consensus revenue estimate of $1.12 billion for the quarter. Nevertheless, the Chicago-based company's fiscal Q3 2012 profit dropped to $35.5 million or $0.42 per share from $62.1 million or $0.73 per share last year. Consensus analyst estimates had earnings pegged at $0.59 per share for the quarter.

Sprint, meanwhile, notes that it will use its new spectrum to supplement coverage in those geographic areas as it moves to upgrades its network and roll out high-speed its LTE wireless coverage. Sprint, which agreed last month to sell a controlling stake to Japan's Softbank for $20 billion, desperately needs to deliver network upgrades as the increased use of smartphones and tablets require more high-speed bandwidth. Sprint also has to deal with its promise to deliver true unlimited data plans to its subscribers. The provider is also committed to offering Apple's iPad mini and new fourth generation iPad on its LTE network - which will further tax its capabilities.

Edited by Rachel Ramsey

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