T-Mobile goes for UScellular's spectrum, customers with $4.4B deal

T-Mobile said it plans to purchase around 30% of UScellular spectrum holdings, all of its 4.5 million customers and its retail stores in a deal worth $4.4 billion. T-Mobile has also said it will make job offers to "a significant number" of UScellular's employees as part of the transaction.

Broadly, the deal builds on T-Mobile's efforts to grow its wireless business through the acquisitions of Sprint in 2020 (worth $26 billion) and Mint Mobile in 2024 (worth $1.3 billion).

However, T-Mobile may face challenges in getting regulators to approve its latest acquisition – particularly given new research that found T-Mobile's purchase of Sprint "led to higher prices and consumer harm." But some analysts, such as Blair Levin, believe T-Mobile's move on UScellular will ultimately pass regulatory muster.

"We believe the transaction(s) is likely to gain government approval but there would likely be a second request [for information]. Further, given the current antitrust leadership, the odds don't reach the high level of certainty that they would have in a prior time," wrote Levin, a policy adviser to New Street Research and a former high-level FCC official, in a note to investors Tuesday, following the announcement of T-Mobile's deal for UScellular.

The Biden administration has moved against a number of prominent companies in antitrust actions in recent years.

T-Mobile's new agreement with UScellular also highlights the challenges that smaller, regional wireless network operators like UScellular have faced in recent years. Indeed, UScellular is just the latest in a long line of such operators to sell their operations to larger wireless players.

"In the face of rising competition and increasing capital intensity required to keep pace with the latest technologies, and following our careful and deliberate strategic review, we are confident that continuing to deliver on our mission requires a level of scale and investment that is best achieved by integrating our wireless operations with those of T-Mobile," said LeRoy T. Carlson Jr., chair of the board of directors of UScellular, in a release.

LeRoy T. Carlson Jr. is the son of LeRoy T. Carlson, who founded TDS – the parent company of UScellular – in 1969. Under his leadership, TDS grew from a collection of small, rural telephone operations in Wisconsin to a national telecommunications provider with billions of dollars in revenue. LeRoy T. Carlson died in 2016 at the age of 100. Walter C. D. Carlson, LeRoy T. Carlson Jr. and other members of the Carlson family have since guided TDS. The company put UScellular up for sale last year.

T-Mobile's stock jumped from around $165 to $168 per share on the news of its bid for UScellular Tuesday. Shares in both TDS and UScellular fell in response to the news.

The customers, the stores and the employees

UScellular counts 4.1 million postpaid customers and around 400,000 prepaid customers across 21 states. Those customers will be able to stay on their current plans, or they can move to an unlimited T-Mobile plan of their choosing with no switching costs. "If UScellular customers choose to switch to T-Mobile, they could save hundreds of millions of dollars combined annually," according to T-Mobile.

The financial analysts at New Street Research, in a note to investors earlier this month, estimated the total value of UScellular's customer base at $6.6 billion, based in part on UScellular's average revenues per customer of $54 per month.

Thus, T-Mobile's $4.4 billion deal appears to have scored access to those customers at prices lower than some expectations – which could explain the decline in UScellular's shares following T-Mobile's announcement Tuesday.

"We see this as positive for T-Mobile," wrote the financial analysts at KeyBanc Capital Markets in a note to investors Tuesday.

"The only problem: subscribers often don't like being bought and sold. There is nothing preventing them from being a T-Mobile or Verizon customer today," wrote the New Street analysts.

T-Mobile's move on UScellular comes just days after T-Mobile instituted a price hike on some of its legacy plans, worth up to $5 per month. The financial analysts at Wolfe Research estimate T-Mobile's price hikes will affect around 10-15 million of its subscribers.

As for UScellular's employees, the company counts 4,300 workers across its corporate and retail operations. UScellular officials said T-Mobile would make employment offers to "a significant number" of those employees after the companies' transaction closes, though they didn't provide details. T-Mobile counts around 67,000 employees.

UScellular officials also did not immediately respond to questions about how many retail stores USCellular operates, nor what might happen to those stores following T-Mobile's purchase of UScellular. Wave7 Research estimates that UScellular has around 600 stores.

Finally, it's worth noting that, according to The Wall Street Journal, T-Mobile CEO Mike Sievert is the 16th highest-paid CEO in the US. He received more than $37 million in total pay last year, including $8.1 million in cash.

The spectrum and the towers

According to an estimate by New Street Research, UScellular's spectrum holdings are worth a total of $5.8 billion. Those spectrum holdings stretch across 700MHz, PCS, AWS, CBRS, C-band and some millimeter wave (mmWave) bands. T-Mobile is looking to acquire roughly 30% of UScellular's spectrum holdings, including spectrum in the 600MHz, 700MHz, AWS, 2.5GHz and 24GHz mmWave bands.

Thus, UScellular's new agreement with T-Mobile sets up an opportunity for UScellular to sell its remaining spectrum holdings to another company. Those remaining spectrum holdings include some valuable midband spectrum in C-band and 3.45GHz. Both Verizon and AT&T may be interested in purchasing those spectrum holdings. The WSJ reported earlier this month that Verizon was in negotiations for some of UScellular's assets, along with T-Mobile.

As for UScellular's towers, the company owns a total of around 4,300 cell towers across its service area. That's a relatively small percentage of the estimated 244,800 outdoor cell sites in the US, according to the Wireless Infrastructure Association.

T-Mobile is not buying any of UScellular's cell towers under its deal for the operator. Instead, T-Mobile will rent space on 2,015 of UScellular's towers in order to extend its network across UScellular's coverage area. It will also continue to rent the 600 towers that currently host its equipment. 

Network operators in the US like T-Mobile and AT&T generally do not own cell towers. Instead, they typically rent space on towers owned by the likes of American Tower and Crown Castle. UScellular is relatively unique in the US market because it still owns most of the cell towers that underpin its network.

According to some estimates, T-Mobile today counts a total of 79,000 cell towers around the country. That's ahead of the 68,000 towers used by Verizon and the 73,000 used by AT&T.

Following the close of its deal with T-Mobile, UScellular said it would become the nation's fifth largest cell tower owner in the US. Around 34% of UScellular's current tower rental revenues come from AT&T, 27% come from Verizon, and 26% come from T-Mobile.

The financials and the details

T-Mobile's $4.4 billion deal for UScellular will be payable in a combination of cash and up to $2 billion in assumed debt. Up to $100 million of the purchase price is contingent on "certain financial and operational metrics between signing and closing and is subject to other adjustments as specified in the purchase agreement," according to the companies.

The companies expect the transaction to close in mid-2025, though it's possible that date might be delayed by regulatory issues.

Finally, UScellular said it will retain its "non-operating equity method investment interests," which is likely a reference to the company's complex agreement with players like King Street Wireless. UScellular is a limited partner in King Street Wireless, which holds some spectrum licenses.

UScellular said it scored $158 million of equity method income and $150 million in distributions in 2023 via such partnerships. The company said it expects such operations to "continue to deliver steady source of cash flows to UScellular" in the future.