Quiver Quantitative - T-Mobile US (NASDAQ:TMUS) (TMUS) and Verizon Communications (NYSE:VZ) (VZ) are in discussions to carve up United States Cellular (USM) in separate transactions that could reshape the U.S. wireless landscape. According to sources familiar with the matter, T-Mobile is closing in on a deal to purchase a chunk of U.S. Cellular for over $2 billion, acquiring some of its operations and wireless spectrum licenses. The Wall Street Journal reports that talks with Verizon on a separate transaction are ongoing and may take longer to materialize or could potentially fall through.
Shares of U.S. Cellular, one of the last major regional wireless carriers, jumped 8.6% to $39.08 following the news. The regional carrier has been seeking buyers for its assets due to intensifying competition from national wireless providers and cable broadband companies. Its controlling shareholder, Telephone & Data Systems (TDS), which owns an 80% stake in U.S. Cellular, put the business up for sale last year. With more than 4,000 cellular towers and a market value of around $3 billion, U.S. Cellular's valuable spectrum portfolio covers 30 states and reaches approximately 51 million people.
Market Overview: Consolidation Drive: -The negotiations highlight a trend of consolidation in the US wireless market, with major players seeking spectrum licenses and rural customer bases. Spectrum Squeeze: -Rising demand for spectrum to support 5G networks and a lack of FCC auctions are driving up the value of existing licenses, making US Cellular attractive. Maturing Market: -Saturated smartphone penetration and a slowdown in population growth are prompting carriers to focus on core businesses and seek alternative growth avenues. Antitrust Considerations: -The potential split-sale structure suggests an effort to address antitrust concerns from regulators during the approval process.
Key Points: -T-Mobile is nearing a deal to buy a portion of US Cellular's operations and spectrum licenses for over $2 billion. -Verizon is engaged in separate talks for a potential acquisition but may not reach an agreement. -US Cellular boasts a customer base of over 4 million in rural areas across 21 states and owns valuable spectrum licenses covering millions of people. -The Carlson family, controlling US Cellular's majority owner Telephone & Data Systems, initiated the sale process due to competitive pressures.
Looking Ahead: -The potential deals could further strengthen T-Mobile and Verizon's positions in the US wireless market, particularly in rural areas. -Regulatory approval hinges on demonstrating minimal impact on competition, potentially leading to a complex review process. -The outcome of these negotiations could influence further consolidation within the US wireless industry.
The deal structure aims to address antitrust concerns by splitting U.S. Cellular's assets between T-Mobile and Verizon. U.S. authorities review wireless mergers on a market-by-market basis, so the two-pronged approach is intended to convince regulators that the transactions won’t stifle competition. T-Mobile is expected to finalize its acquisition by the end of the month, while Verizon's negotiations are expected to take longer.
The rising value of wireless licenses is a significant driver behind these deals, especially as the Federal Communications Commission (FCC) has not had the legal authority to auction new spectrum for over a year. This drought has driven up the price of existing spectrum licenses, making U.S. Cellular's portfolio highly sought after. "American companies have spent over $100 billion in recent years to secure airwaves for 5G signals and are hunting for more," the WSJ reported. As one of the last remaining regional carriers, U.S. Cellular has long been an attractive takeover target in an increasingly consolidated wireless industry dominated by Verizon, T-Mobile, and AT&T (T).
This article was originally published on Quiver Quantitative