United States Cellular Corp. (USM), subsidiary of Telephone & Data Systems Inc. (TDS) has successfully completed its spectrum sale in its Midwest markets to Sprint Nextel (S). The agreement involves the sale of spectrum that supports Long Term Evolution (LTE) coverage and services in key markets like Chicago and St. Louis.
Under this deal, U.S. Cellular sold around 20 MHz of spectrum to Sprint in Chicago and other key Midwestern markets, and 10 MHz of bandwidth in the St. Louis market. The $480 million cash deal struck in Nov 2012, with Sprint also incorporates the handover of approximately 585,000 customers, accounting for about 10% of U.S. Cellular’s customer base to Sprint.
This transaction allows U.S. Cellular to continue operations in these areas and add customers for the next two years after the deal closure and Sprint to disburse costs incurred on such operations.
U.S. Cellular is focused on data service expansion by incorporating the 4G LTE technology. In Mar 2012, the company rolled out its first LTE services and now plans to cover approximately 87% of its subscriber base by year-end 2013. In context to this, the company has been persuading several strategic deals that allow it to leverage its network operation by optimizing spectrum requirement.
Prior to the Sprint deal, U.S. Cellular rolled out similar arrangements with Verizon Communications (VZ) in Sep 2011. The company underwent a spectrum swap with Verizon Communications that provided it with eighteen 700 MHz spectrum licenses covering eight states.
We believe these spectrum deals allow the company to improve cost and profitability while managing network efficiency and data delivery cost.
Following this news, the company’s board of directors approved a special dividend of $5.75 per share, amounting to $481 million, payable on Jun 25 to shareholders of record as of Jun 11.
Currently, U.S. Cellular has a Zacks Rank #3 (Hold).
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