One of the premier wireless service providers and a subsidiary
Telephone and Data Systems Inc.
United States Cellular Corporation
), recently announced its $480 million deal with
Sprint Nextel Corp.
). The agreement entails the sale of U.S. Cellular's Chicago, St.
Louis, central Illinois and Midwest markets to Sprint
In addition, the deal incorporates handover of personal
communications service (PCS) spectrum and approximately 585,000
customers, accounting for about 10% of U.S. Cellular's customer
base. The company expects the transactions to close by mid-2013,
subject to completion of all regulatory approvals.
The bottom line of this deal will be having to resolve
spectrum issues underlying LTE expansions taking place in
both these companies. Spectrum constraint is the biggest
challenge the wireless industry is currently facing. Therefore,
any industry consolidation that takes place through merger
acquisition or sale of assets as in the case of this deal has a
lot to do with wireless spectrum.
As for Sprint, the agreement means more spectrum that will
support its LTE coverage and services in key markets like Chicago
and St. Louis. The company would receive 20 MHz of spectrum that
would support its 1900 MHz band in Chicago and other markets, and
10 MHz of bandwidth in St. Louis market.
As part of the Network Vision strategy, the company launched
LTE services initially in five major markets -
Atlanta, Dallas, Houston, Kansas City and San Antonio - in
mid-July. Sprint expects to add four more markets - Baltimore,
Gainesville, Manhattan/Junction City and Sherman-Denison - before
Labor Day. The LTE coverage is expected to reach more than 120
million people (or roughly half of its CDMA footprint) with a
deployment of 12,000 sites by this year-end and more than 250
million customers with 22,000 cell sites by the next.
From the standpoint of U.S. Cellular, the deal would enable
the company to seek its expansion plans in the LTE space.
In March this year, the company rolled out its first LTE
services in Iowa, Wisconsin, Maine, North Carolina, Texas and
Oklahoma. Further, it plans to cover an additional 3,600 cities
by the second half of the year. Overall, the company expects
approximately 58% of its subscriber base to be covered by 4G
LTE by the end of this year.
U.S. Cellular completed a spectrum swap with Verizon
Communications in September last year that provided U.S. Cellular
with eighteen 700 MHz spectrum licenses covering eight states.
Besides supporting infrastructure, the spectrum swap is expected
to enhance network capacity along with improvement in voice and
data services in existing markets.
The company expects the deal to streamline its operations and,
thereby improve its profitably. Further, the sale would also
entail an increased focus in more profitable markets for the
Although these developments would remain accretive to the
company's profitability over the long term, we believe heavy
capital expenditures will remain detrimental to its
financial position. Further, expenditures on network integration,
competitive market,intense pricing and regulatory pressures may
pose near-term threats for the company.
We recommend a long-term Outperfrom recommendation on U.S.
Cellular. However, the stock carries a Zacks #3 Rank, implying a
short-term (1-3 months) Hold rating.
SPRINT NEXTEL (S): Free Stock Analysis Report
TELEPHONE &DATA (TDS): Free Stock Analysis
US CELLULAR (USM): Free Stock Analysis Report
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