eWEEK content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.
Sprint’s announcement on Nov. 7 that the company would purchase spectrum and customer accounts in the Chicago and St. Louis areas, as well as in other parts of the Upper Midwest from US Cellular, is an effort to get Sprint the LTE spectrum it needs.
The deal, funded by a huge investment of money from Japanese wireless carrier SoftBank, will result in Sprint getting about 10 percent of US Cellular including 585,000 US Cellular customers.
US Cellular has coverage in the Midwest along with areas in New England and in the Pacific Northwest. The Sprint deal would net US Cellular about $480 million. Sprint would get 20 MHz of LTE spectrum in the PCS bands where Sprint already operates.
Ultimately, this deal is about the spectrum that Sprint needs to overcome its currently weak position in LTE spectrum holdings. Sprint currently divides its 4G network among its own limited LTE deployments, WiMax deployments, and 4G deployments owned by Clearwire. Sprint owns slightly less than half of Clearwire.
When the US Cellular deal was first announced, it seemed like a ploy by Sprint to become a larger carrier through acquisition, but once I read through the description of the deal from US Cellular’s viewpoint, it’s clear that Sprint isn’t actually becoming much bigger. While it will be getting a half-million subscribers through the acquisition, those are pretty expensive subscribers and there aren’t enough of them to affect Sprint’s size in terms of competition.
So what’s Sprint up to? Obviously to expand its LTE spectrum holdings. Sprint is hurting pretty badly when it comes to that. But Sprint already has a large chunk of Clearwire, and they have lots of spectrum. Unfortunately, Clearwire isn’t in great financial shape. Unless Sprint quickly succeeds in taking control of Clearwire, its partner could decide to sell itself to another carrier.
Fortunately for Sprint, that possibility occurred to somebody and shortly after the SoftBank acquisition Sprint moved to buy enough of Clearwire to have controlling interest. But the Clearwire acquisition hasn’t made it through U.S. Department of Justice antitrust review or Federal Communication Commission license transfer approval. So it’s not in place yet. That will likely happen shortly before Sprint closes with US Cellular, assuming there are no regulatory objections.
The reason for the urgency is two-fold. First, AT&T has been on a buying spree to add as much LTE spectrum as it can find. If Sprint waited, it could be that AT&T would decide to buy part of US Cellular. This way, Sprint when it combines the spectrum it has from the Clearwire deal to the spectrum from the US Cellular deal, will have enough room for LTE for now.
Sprint’s 4G LTE Sprectrum Buying Spree Continues With US Cellular
The other reason is that T-Mobile is also buying up LTE spectrum and T-Mobile has already built out its infrastructure and backhaul so it can go live nearly all at once in 2013.
Basically, Sprint is already going to be behind the curve, moving slowly could make it even worse for this struggling carrier. But to keep moving forward, Sprint needs to have the cash to buy more. This may be the reason why the company just announced an offering of senior notes as a way to pay off its existing debt with new debt. This also means that Sprint doesn’t obligate SoftBank’s cash at a time when it wants to keep buying spectrum.
So what’s next? The chances are that the company is looking for another source of LTE spectrum. There’s still plenty of spectrum around, but the problem is finding a company to buy it from. AT&T is also buying, and can afford to spend more than Sprint, even with SoftBank’s backing. T-Mobile is also buying, and worse for Sprint, it’s in the low cost provider space where Sprint wants to be but isn’t. Even bigger competitive challenge for Sprint in its quest for spectrum is that T-Mobile has the billions of dollars it got from AT&T, a large stock of LTE spectrum that it got from AT&T and it’s got the backing of its own parent, Germany’s huge Deutsche Telekom.
Sprint is kind of between a rock and a hard place. It needs to find spectrum where it can and as quickly as it can if it’s to continue its growth. Unfortunately, buying ten percent of US Cellular isn’t going to do much to help Sprint grow. Worse, the doors are closing every day.
Clearwire is probably Sprint’s best path to salvation. Having controlling interest may help, but ultimately Sprint needs to own the whole company, so once it gets the current Clearwire deal under its belt, it’s highly likely that Sprint will attempt to acquire the whole thing. This, at least, would give Sprint unfettered access to all of Clearwire’s LTE and WiMax holdings.
In the near term, at least, Sprint will have some room to maneuver. The company can start using its new LTE spectrum as soon as its deals with Clearwire and US Cellular close. In the meantime, the two companies plan to launch a transition process that will lay out the way for Sprint to take over its US Cellular purchase.
But there still needs to be more. Perhaps the only answer for Sprint is to decommission its WiMax service just as it has the old Nextel iDEN network. It will be a drastic step, but one that Sprint can make easily and quickly.