More than a year after announcing plans to sell off or find a partner for its wireless division, Qwest Communications International Inc. last week reported a deal with Sprint PCS that calls for Qwest to transition its nearly 1 million wireless subscribers to Sprint PCS’ network but still allow Qwest to continue to offer wireless services for its increasingly important bundled and business offerings.
Under terms of the agreement, Qwest said it would begin moving its customer base to Sprint PCS’ network, which Annette Jacobs, executive vice president of Qwest’s consumer markets group, said was scheduled to be completed during the first quarter of 2004. Jacobs added the transition would be helped by the impending implementation of wireless local number portability as Qwest customers would be able to take their current phone numbers to Sprint PCS’ network.
While Sprint PCS would provide the network resources and reap the wholesale rates generated by Qwest customers, Qwest said it will continue to provide sales and service support to all of its wireless customers, including handset sales and promotions, price plans, data services and customer service, including billing and account management. The company will also be able to offer its predominately business-oriented customer base bundled nationwide wireless calling options as well as Sprint PCS’ Vision wireless data service, which Sprint PCS recently reported was serving more than 2 million subscribers.
“This agreement allows us to provide customers with nationwide wireless service and the convenience of Qwest’s integrated landline and wireless features,” said Richard Notebaert, chairman and chief executive officer of Qwest. “In addition, Sprint’s cutting-edge wireless data applications make our comprehensive package of telecommunications services one of the most compelling combinations available.”
Analysts noted the deal should prove positive for Qwest. While the deal doesn’t enable Qwest to sell wireless outside its current markets, the company is finally able to quickly provide national coverage without having to purchase spectrum or build out a network.
“This is a significant strategy shift for Qwest, which only last year had announced plans to dump its limited wireless business altogether,” said Jeffrey Rickard, senior wireless analyst at Current Analysis. “But with the increasing power of wireless as both a consumer and business demand, and the obvious end result of significant cord-cutting moving forward, the carrier needed a wireless play beyond its lacking local/regional situation, which didn’t evolve with the market.”
The deal also enables Qwest to begin offering wireless data services that the company said it would not have been able to do with its limited spectrum holdings.
“Our 10 megahertz of spectrum precluded us from expanding data services,” explained Jacobs.
Sprint PCS spokesman Dan Wilinsky said the deal was similar to the carrier’s agreement with mobile virtual network operator Virgin Mobile USA L.L.C., which Sprint PCS jointly owns with Virgin Group plc, and that the carrier expected to count Qwest’s incoming customers as wholesale customers on its network.
In addition to gaining nearly 1 million wholesale customers without having to pay the usual acquisition costs, analysts expect Sprint PCS to reap a healthy financial reward from the deal. UBS Warburg said in a report that Sprint PCS could generate about $20 in wholesale monthly average revenue per user per Qwest subscriber and an additional $50 million to $100 million in incremental earnings before interest, taxes, depreciation and amortization next year.
In connection with the Qwest agreement, Sprint PCS also announced an agreement with affiliate UbiquiTel Inc. to build out spectrum licenses in Montana that the affiliate had yet to construct and where Qwest currently serves customers. Sprint PCS’ buildout is expected to include Billings, Bozeman, Butte, Great Falls, Helena, Kalispell and Missoula, Mont., and is scheduled to be completed during the next 12 to 18 months.
While the deal will reduce UbiquiTel’s service area to approximately 10 million pops in portions of California, Nevada, Washington, Idaho, Wyoming, Utah, Indiana and Kentucky, the carrier said it was “extremely pleased” with the agreement.
Sprint PCS stressed that the deal with UbiquiTel was a unique agreement and that it would not have any impact on the carrier’s relationships with its other affiliates. Sprint PCS has come under fire by many of its network partners recently including a pair of bankruptcy filings that blamed Sprint PCS’ affiliate agreements for their troubles.
When Qwest completes the transition of its customer base to Sprint PCS’ network early next year, the company will be left with an empty CDMA network and a portfolio of 10-megahertz spectrum licenses in a handful of top markets, including Phoenix and Tucson, Ariz.; Minneapolis; Denver and Colorado Springs, Colo.; Portland and Salem, Ore.; Salt Lake City; Omaha, Neb.; and Albuquerque, N.M.; that the company said it hopes to sell.
“It will be put up for sale in due time,” Jacobs said.
Analysts mentioned a number of usual suspects that could be interested in Qwest’s wireless holdings, including Verizon Wireless, Cingular Wireless L.L.C., Alltel Corp. and even Sprint PCS, which a Qwest spokeswoman said was looking at acquiring Qwest’s Montana operations to offer service as it builds out its own network in the region.
Verizon Wireless said last year that it was not interested in Qwest’s wireless assets since it had “ample capacity” in Qwest’s markets for the next three to five years. The nation’s largest carrier also recently completed a $750 million acquisition of 50 PCS licenses from Northcoast Communications L.L.C. covering markets in the Midwest and along the East Coast.
Alltel said last year that it was not interested in Qwest’s footprint, noting the carrier was more interested in building out cellular spectrum than spending additional capital required to construct a PCS network.
Despite an announcement last week that it planned to acquire 34 spectrum licenses from bankrupt license holder NextWave Telecom Inc. for $1.4 billion, analysts noted Cingular would seem to have the most to gain from Qwest’s license holdings since the carrier’s nationwide network has a number of holes that align with Qwest’s soon-to-be-empty spectrum.
