Sprint Corp. (S - Analyst Report) has announced to close down its acquired portion of United States Cellular Corp. (USM - Analyst Report) network on Oct 31, 2013. The company has been notifying U.S. Cellular customers of St. Louis metropolitan area and some parts of Missouri and Illinois markets of this shut down to expedite closure. The company will then use this free wireless spectrum to improve service capabilities of its own network across the nation.
Last November, Sprint struck a $480 million deal with U.S. Cellular – a subsidiary of Telephone & Data Systems Inc. (TDS - Analyst Report) – that entailed the sale of U.S. Cellular’s Chicago, St. Louis, central Illinois and Midwest markets to Sprint. The deal included the handover of personal communications service (PCS) spectrum and approximately 585,000 customers, accounting for around 10% of U.S. Cellular's customer base.
The closure is intended to resolve the spectrum issues in LTE expansion faced by both parties. Spectrum constraint is the biggest challenge that 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.
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 received 20 MHz of spectrum supporting its 1900 MHz band in Chicago and other markets, and 10 MHz of bandwidth in St. Louis market. Sprint also completed the Clearwire acquisition, thereby gaining full rights over Clearwire including access to its radio frequency spectrum ranging 2.5 GHz, utilized in providing services using 4G 802.16e mobile WiMAX standards.
As part of the Network Vision strategy, the company’s LTE services currently covers over 151 markets with 20,000 sites on air. In 2013, the company expects to have LTE coverage for approximately 200 million customers. We believe the efficient use of capital, reduction of cell sites, the elimination of dual networks, backhaul efficiencies, reduced churn, lower roaming charges and energy cost savings bodes well for Sprint’s long-term growth. Hence, the network restructuring is expected to generate $10 billion to $11 billion in savings over a seven-year (2011–2017) time frame. Moreover, Sprint’s OBITDA margin is expected to grow 1200–1600 basis points (bps) by the end of 2014. About half of the margin expansion would come from the Network Vision plan and the other half from its core operations.
Sprint, which operates with telecom giant AT&T, Inc. (T - Analyst Report), has a Zacks Rank #3 (Hold).