United States Cellular Corporation (USM) has agreed to sell the majority of its Mississippi Valley spectrum license to a wholly owned subsidiary of T-Mobile US Inc. (TMUS). The deal – pending approval of the Federal Communications Commission and Department of Justice – is slated to be completed by 2013 end.
Per the agreement, T-Mobile will shell out $308 million in cash to purchase 10 MHz of Advanced Wireless Services (AWS) spectrum license covering a population of almost 32 million across 29 markets. These include St. Louis; Nashville, Kansas City, Memphis, Lexington, Little Rock-North Little Rock, Birmingham, New Orleans and Louisville.
With this acquisition, T-Mobile will be able to deploy its 4G Long Term Evolution (LTE) network on a bigger scale and at a faster rate, adding more regions to its coverage. This will help the company to provide smooth 4G connectivity to a broader base of customers as well as fortify its position within the wireless sector.
On the other hand, U.S. Cellular will continue to hold on to a portion of the license spanning in Knoxville and eastern Tennessee markets for future operating needs. This transaction is part of the company’s Market Divestiture program – announced in Nov 2012 – under which it aims to divest non-strategic less-profit generating assets.
In May, U.S. Cellular – an affiliate of Telephone & Data Systems Inc. (TDS) –successfully completed its spectrum sale in its Midwest markets like Chicago and St. Louis to Sprint Nextel (S). The $480 million cash deal also incorporates the handover of approximately 585,000 customers, accounting for about 10% of U.S. Cellular's customer base to Sprint.
We believe that U.S. Cellular is on track to enhance growth and profitability by focusing on stronger markets. These spectrum deals will allow the company to redefine its business model and improve its cost structure, while managing network efficiency and data delivery services.
Currently, both U.S. Cellular and T-Mobile carry Zacks Rank #3 (Hold).
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