Analysts weigh Sprint's $480 million U.S. Cellular deal
Nov 07, 2012 (The Kansas City Star - McClatchy-Tribune Information Services via COMTEX) --
Sprint Nextel Corp. has dipped into its newly gained $3.1 billion cash horde this morning to buy a Midwest clump of U.S. Cellular Corp.'s wireless business and its subscribers there.
The $480 million deal covers 585,000 customers of Chicago-based U.S. Cellular in parts of five states and includes Chicago and St. Louis.
Analysts said the deal makes sense for Sprint, which also gets additional wireless spectrum in the deal. Spectrum is the licensed airwaves that cellular networks need to carry their customers' phone calls, text messages and data.
Sprint CEO Dan Hesse is expected to talk about the deal during an industry conference Thursday. In an announcement, Hesse said the deal "significantly increases Sprint's network capacity" in the areas covered by the agreement.
The subscribers, who are mostly under two-year contracts with U.S. Cellular, also are an important part of the value of the transaction. But, as one analyst noted, they aren't compelled to stay put waiting for the deal to be reviewed by federal officials and completed mid-next year.
"There is the risk that many of these subscribers bolt before being transitioned to Sprint," Craig Moffett at Sanford C. Bernstein & Co. wrote in a note to clients.
He also said Sprint likely will work to move the subscribers to its own network after the deal is completed. Sprint and U.S. Cellular use the same wireless technology in their phones.
U.S. Cellular said it agreed to sell the roughly 10 percent piece of its customer base because it was losing money and shedding contract customers at a high rate in the territory that covers parts of parts of Illinois, Indiana, Michigan, Missouri and Ohio.
Often, U.S. Cellular has been the fifth carrier to enter the markets and hadn't gained many customers, U.S. Cellular officials told analysts during a conference call.
The two companies have advised customers that they need not do anything and will continue to receive their normal service. Later they will tell customers how the switch to Sprint will happen.
Sprint has agreed to pay U.S. Cellular to continue operating its network in the area for up to two years after the deal is completed. It also will pay U.S. Cellular's costs to decommission its network in the area, including some related employee severance benefits.
The deal is Sprint's first since raising $3.1 billion from Tokyo-based SoftBank Corp., which has agreed to buy a 70 percent stake in Sprint for $20.1 billion.
Sprint's stock was trading 7 cents lower at $5.66 at mid-day. U.S. Cellular shares had fallen more than 9 percent, down $3.68 at $35.34.
--Mark Davis, email@example.com
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