Shares of UScellular shot up more than 20% on Thursday after the Wall Street Journal reported that T-Mobile is in talks to buy part of the regional carrier for more than $2 billion.
The WSJ report, citing people familiar with the matter, also said Verizon is in separate but less advanced discussions to carve up UScellular. Verizon’s deal might take longer or “might not result in an agreement,” the WSJ reported.
But a source close to the matter told Fierce that Verizon is no longer in talks about a potential deal.
None of the carriers would comment. “As a matter of policy, we do not comment on rumors or speculation,” a UScellular spokesperson told Fierce.
Just a week ago, UScellular declined to provide any updates on the sale process during its May 3 Q1 earnings call. Parent company Telephone & Data Systems (TDS) announced in August 2023 that it was exploring “strategic alternatives” for UScellular, which has been steadily losing customers.
“This company is dying a slow death,” analyst Roger Entner of Recon Analytics told Fierce shortly after UScellular’s Q1 conference call. The earnings call ended before the full hour was up because no more analyst questions were in the queue. “Even investment analysts are losing interest. It just doesn’t look good,” he said.
Chicago-based TDS has been controlled by the Carlson family for decades, and it was previously assumed that they were not interested in selling. That changed last year. Still, with no comment on the sale process after more than six months, things didn’t look good.
“The strategic review should have come 10 years ago and they would have made a lot of money,” Entner commented.
Let’s make a deal
It’s hard to maintain a business that's losing subscribers, and UScellular posted a loss of 47,000 postpaid phone customers in the most recent quarter.
“It’s probably driving UScellular to make a deal faster because the longer the bad results drag out, they lose negotiating leverage,” said IDC analyst Jason Leigh.
On the flip side, “this is not about their mobile business. This is about the spectrum licenses,” he added.
UScellular’s spectrum holdings include 600 and 700 MHz, cellular, PCS, AWS, CBRS, 3.45 GHz, C-band, as well as 24, 28, 37 and 39 GHz bands, according to a New Street Research (NRS) report last year. NSR valued USCellular’s entire spectrum portfolio at $3.2 billion. In a report Thursday, NSR analyst Jonathan Chaplin said they were not surprised to see T-Mobile reportedly in talks.
Divvying up pieces?
Leigh said he wouldn’t be surprised to see a deal structured where more than one carrier gets a piece of UScellular.
In wireless, only so many entities are capable of buying UScellular, or parts of it, and it’s hard to see anti-trust authorities being OK with one of the Big 3 carriers outright buying the entire company. Sure, a Comcast, Charter Communications or other cable company could be interested, but “their footprints are so scattered that would not make a tremendous amount of sense,” he said.
While it’s somewhat surprising not to see AT&T in the mix, AT&T might have enough on its hands with FirstNet and building out its current portfolio, Leigh said.
A cynic would say AT&T, T-Mobile and Verizon (in addition to cable players) are going to get UScellular’s subscribers over time anyway and “this just kind of accelerates that,” Leigh said. “I think this deal is really about the spectrum and getting the best spectrum portfolio that everybody can get.”
Carriers are finding their existing spectrum portfolios sufficient to meet their current needs, but with the FCC’s auction authority on hold, carriers are on the lookout for spectrum licenses they can pick up on the secondary market.
Leigh noted that TDS is beefing up its fiber build. Given that T-Mobile is forming a joint venture with EQT and plans to acquire fiber-to-the-home provider Lumos, it’s intriguing to consider how a possible hookup with TDS could grow T-Mobile's fiber footprint beyond Lumos' mid-Atlantic reach.
At this point, one can only speculate on what’s happening, but a split-sale kind of deal makes sense. “The details will matter, but at least at a high level, it’s probably the fastest way to get a deal done,” Leigh said. “I think it’s going to be structured in such a way to get a deal done faster for all involved.”