In an attempt to strengthen its bottom line, Sprint PCS affiliate US Unwired Inc. announced a pair of deals last week that the carrier said would generate approximately $30 million in gross proceeds.
The larger deal included the sale of US Unwired’s cellular network in Lake Charles, La., as well as several 10-megahertz PCS licenses in Alexandria and Shreveport, La., and Longview, Paris and Texarkana, Texas, to Cingular Wireless L.L.C. for $27.6 million. US Unwired noted its cellular operations served slightly more than 50,000 subscribers at the end of the second quarter.
A smaller deal involved the sale of three PCS licenses in Mississippi to Cellular South, which provides service in five Southeastern states covering 5.8 million potential customers, for $2.4 million.
The sales are not expected to impact US Unwired’s affiliate arrangement with Sprint PCS since US Unwired will continue to operate its PCS network, which covers 68 markets in 14 states and served nearly 600,000 customers at the end of the second quarter. US Unwired also maintains control over five PCS licenses that are separate from the licenses it manages for Sprint PCS.
“These transactions strengthen our balance sheet and allow us to focus on our core PCS business,” said Robert Piper, president and chief executive officer of US Unwired. “We started in wireless in 1987 with our cellular operations, so it’s clearly important to us from a historical perspective, however, it now represents less than 3 percent of our revenues and can now best serve the company as cash.”
US Unwired said it was in compliance with its $170 million bank credit facility covenants and it had $70.4 million available at the end of the second quarter, but noted it could not guarantee it would remain in compliance with certain financial covenants stipulated in the credit agreement during the rest of this year.
The regional carrier filed a lawsuit against Sprint PCS in late July, claiming fraud, racketeering and breach of fiduciary duty that US Unwired claimed contributed to its nearly $1 billion loss in enterprise value. The lawsuit charges that Sprint PCS denied US Unwired access to advanced services including wireless Internet offerings in an attempt to gain greater control over US Unwired’s operations.
“Sprint affiliate US Unwired-hard up for cash and claiming a bum deal from Sprint PCS-gets to add the $27.6 million to its balance sheet, improving its financial stability as it moves forward in its efforts in trying to address how it can resolve its relationship with Sprint PCS,” noted Jeffrey Rickard, senior wireless service analyst at Current Analysis.
While generating much-needed revenue for US Unwired, analysts noted the deal leaves the regional operator completely beholden to Sprint PCS instead of providing an alternative, though limited, option in case the relationship between the two companies deteriorates. A US Unwired spokesman said the asset sale would not impact its court proceedings with Sprint PCS.
In addition to providing much-needed capital for US Unwired, the asset sale continues Cingular’s recent rash of spectrum acquisition, including its pending $1.4 billion deal to acquire 34 PCS licenses covering more than 80 million pops from NextWave Telecom Inc. and a smaller $13.75 million deal announced last month to acquire portions of three PCS licenses in Florida from Sunshine PCS Corp.
“This is another opportunity for Cingular to expand our coverage area and add spectrum at a fair price,” said Mark Feidler, chief operating officer at Cingular.
Cingular added that while a Sprint PCS affiliate selling spectrum to a rival might not appear as the most obvious deal, it works out well for both parties.
“I think it was a matter of its TDMA properties not fitting into their long-term plans, and we were looking to add to our holdings in some markets,” said Cingular spokesman Clay Owen.
While industry analysts have harped on Cingular’s lack of nationwide coverage, the US Unwired deal is similar to its previous acquisitions in that it involves markets where Cingular either already offers service or controls spectrum and does not significantly alter its coverage footprint.
Instead, the deals are expected to provide Cingular with additional capacity in its current markets to continue the overlay plans for its legacy TDMA network, introduce higher-speed EDGE technology and improve network quality.
“With this additional spectrum, Cingular is making room for not only anticipated increases in voice traffic, but also for future innovations that are expected to be offered over the carrier’s EDGE network,” said Current Analysis’ Rickard. Cingular’s recent spectrum acquisitions also point to network coverage and quality concerns that the carrier could be looking to rectify ahead of the impending wireless local number portability mandate, he added.
Owen noted the conversion of US Unwired’s TDMA cellular network would be included with Cingular’s planned overlay of its Louisiana network.
