Wade4Wireless

What could happen if US Cellular is sold?


First off, I am not sure, I am speculating. This is my opinion based on what I have seen with mergers in the past. My opinion and not that of my employers, friends, or anyone else I know unless they happen to agree with me.

This may come as a shock, but after being in the industry for 30 years I have seen a merger or two, and been involved as a mere peon myself in several. You know, if it’s a large merger, no decision maker asks you your opinion. When it’s a smaller company, everyone asks your opinion until you ask to get paid. Free advice gives you what you pay for and probably isn’t the best option when it comes to your money. Like financial advice, if it’s free, it may not be valuable or accountable. 

This story has been in the news so if you’re in telecom, you’re aware that there has been a report that USCC may sell their telecom business off. 

  • Remember, heavily regulated industries take a long time to close. It may take years, just keep that in mind. 
  • Some workers at USCC will be OK, at least some of them
  • The site contractors should do well because USCC’s territory is rural, so assume limited competition. 
  • The OEMs will depend on the territory, Ericsson and Nokia should be winners where TMO takes over and Samsung and Ericsson will win in Vz markets, assuming it’s broken up like that). In the past, carriers have kept incumbent OEMs relative to the market. 
  • I would think that the FCC may ask for concessions from TMO and Vz.
  • The customer probably won’t care until their bill goes up.
  • Acronyms:
  • BAU = Business as Usual
  • FCC = Federal Communications Commission (Did I really have to spell it out for you?)
  • SEC = Securities Exchange Commission (OK, in telecom we look less at the SEC)
  • TMO = T-Mobile
  • Towerco = tower company, like American Tower or Crown Castle.
  • USCC – US Cellular Company
  • Vz = Verizon

The wait!

Waiting is the hardest part and it always takes the FCC and the SEC some time to review and approve it. I was trying to think if they would get in the way but I don’t see them trying to stop it unless there’s something I don’t know. US Cellular wants to see and they are having trouble surviving, at least from what I read. They haven’t been able to right the ship for some time.

The other thing is the structure of the sale. USCC has something in mind and I am sure the suitors have their own ideas. This is going to take some time to structure properly. 

I will tell you this, all the companies involved are smart people and they will put a deal together that makes the most sense for all parties involved. 

With the heavily regulated telecom industry pushing out the smaller players, thank you Telecom Act of 1996, the smaller players can’t compete. All the head winds were against them, including the spectrum auctions. Kudos to the incumbents. 

What does Verizon want?

Spectrum and customers first, I think that is what interests them. Maybe some assets and coverage, but I think Verizon only wants assets and maybe to take over some leases and gain some coverage. They also have some agreements and investments in common with USCC. I think that this will clean all of that up. 

Not to mention they probably have to pay ISCC some roaming fees when subs leave Vz coverage and move to USCC coverage.I believe that agreement is still in place but I am not sure. 

On the downside, they will have to invest money in the merger, acquisition, and then the migration of USCC assets over to Verizon. Not to mention the upgrades, moves, and removal of equipment. It could be daunting.

What would T-Mobile want?

Everything they could get in areas they don’t cover. Spectrum, assets, customers. They want to expand coverage and gain subs all in one fell swoop. While it doesn’t look like a huge gain, it’s the rural coverage that makes sense, (if the price is right). I think TMO emerges as the big winner here going forward. If they can gain customers, spectrum, and territory, it’s a win.

I am assuming TMO will no longer have to pay USCC roaming fees so they can save in that respect while becoming the #1 carrier in performance and coverage. Pretty impressive for someone who not so long ago was #4. 

For TMO the downside is more network investment to migrate, upgrade, and remove. They will have to weigh out the expenses versus the payback. 

What would happen to the USCC workers?

This is something I worry about. I think most should be fine for 2 to 4 years. The transition period takes some time, however, if you have knowledge and value, you increase your chances of staying. Just make sure your new company is the place you want to work. On the other hand, if you’re just filling a hole and killing time, (you know who you are), then start looking elsewhere, perhaps outside the industry.

TMO and Vz need to keep good and valuable people with specialized knowledge, at least until the network is completely absorbed. They want to continue with BAU, which means reliable service right into the migration.

Eventually, everything will be the TMO standard model. Whatever market you’re in, you will be absorbed into the regional market and that market leader will have the say on how things will be run. That leader will control the headcount and make decisions on who and how the market will be run. 

TMO and Vz have some really good managers that make well thought out decisions, most of the time. They will have a plan to absorb, convert all the sites to their specific standards, and headcount. Sorry, but that’s how it is.

Remember all telcos are reducing staff. This is happening now regardless of the merger. The job security in telecom, no matter where you are on the food chain, is up in the air. It doesn’t matter who you work for. Contractors are shutting down, OEMs are making deep cuts, telcos are letting staff go, and shareholders want to see profits from the 5G implementation. 

What about the general contractors (GCs)?

Well, this is the good news. No matter who takes it over, the local GCs should win. In fact, they should get more work in the short term as both companies will want to integrate those regions and spectrum into their assets. All they have to do is onboard with the new company if they aren’t already. 

Tower crews local to the USCC towers have an advantage because they’re local and already know the towers, access, and equipment. They may have to learn a new OEM but let’s face it, radios are radios. The tower installation should not be overly complicated.

The integration contractors may have to learn a new product. Ericsson, Nokia, and Samsung all have their own certs, so that will be a factor if the new owner migrates to a new OEM.

If they have towers nearby, they will evaluate to see the following.

  • Which one has better coverage?
  • Which one can handle the additional loading? Trust me, Vz and TMO probably have way more stuff on their towers than USCC.
  • Which one is cheaper, they still have budgets!!
  • Which lease they can get out of faster. See budgets above.
  • Which Towerco do they like more? Yes, relationships matter!

As for the move forward, if the GC is in that remote area, then the new company (TMO or Vz) will see value in working with someone who can do the work for a reasonable price. If you think you can gauge them, you are sadly mistaken. They will gladly bring someone in from far away just to stick it to you, trust me. 

What about the OEMs?

This is a tricky one. To be clear, I am not sure who the top 10 OEM vendors are for USCC. I am assuming Nokia, Ericsson, Samsung, Cisco, and a few more. 

Anywho, the thing is that will change once the contract is signed because the new owner has vendors of their own. They have contracts in place and if there is not a contractual obligation to complete after the merger, then it will be BAU at the new company. 

How will the FCC react?

They will look it over, take input from the SEC, look at the spectrum holdings, consider the competition outlook, financial outlook, then make a decision. I can’t imagine them saying no. I don’t see a major obstacle, but then again, I don’t know all the details.

I am sure that some states will sue based on competition. Mainly to get some type of fine or money from the bigger carriers. I am guessing here, but I could see the states where USCC is engaged heavily raising red flags and building lawsuits looking for some type of compensation due to the reduced competition. Just a guess but it would not surprise me. 

What about the towers?

I would think USCC will keep the towers for now, mainly because the carriers probably don’t want to pay for them. Their towers are probably built for one, nice in a relationship but bad for a tower owner.

To expand you probably have to beef them up. That takes time and money, something the carriers don’t see as a priority to invest in. They are probably rural with few customers clamoring to get them on today.

Location, location, location. We all want to be in the right place at the right time and unfortunately, over the years, USCC has retreated to the place of lease competition (a pro) which is also the place of least value for towers (a con). 

So, what can they do? Apparently, the investors want to move on. 

Back to the towers, I think USCC will have the purchaser commit to 5 years or more of paying for rent on the tower. I think they will start asking for 20 years, but I am not sure how the negotiations will go. I think 5 years is a very short time.

While 5 years may not be much, it’s revenue for USCC until they can sell the towers. It also makes them more attractive to American Tower and Crown Castle. 

Will TMO and/or Vz keep assets on the towers? If they’re paying for them, of course. How much Nextel equipment is still on towers because of their long-term leases? So many!!! While you think it makes sense to get off of them today, it doesn’t. Leave the equipment on the tower, turn the power off, let it rot until the day you have to get off. Push out the expense. While this may seem stupid to you, it makes sense to them. Towercos want their towers to look busy while sitting back and collecting revenue. This is probably one reason why there is so much bickering between carriers and towercos.

So next time you look and see Nextel or other obsolete equipment on a tower, now you know why. The towercos like it because it makes the tower look valuable and the carriers won’t pay for it until they have to, (unless they get really slow). If they don’t have it in the lease to remove the equipment, they won’t. They will simply move on.

What were the past CapEx investments of USCC?

OK, when I looked into this, I got high level numbers from what is online. I am guessing this is in the ballpark, but not accurate. 

  • 2022 CapEx was about $717M.
  • 2023 CapEx was between $600M and $700M.
  • 2024 CapEx estimated between $550M and $650M. 

As you can see, slightly less than Vz or TMO. 

What about the customers?

To be honest, if USCC was growing by leaps and bounds, they probably wouldn’t be selling. At least that is what I think. 

The subscribers probably won’t care until their bill goes up. Then they have to look around to see who else they can switch to. 

If TMO, then they could go to MINT Mobile for unlimited plans, cheaper prices with the same coverage.

If Vz, then they could go to Visible for unlimited plans, cheaper prices with the same coverage.

Consumers will do what they want to do depending on where they are at the time. Priorities are different for each age group, but I think everyone is seeing prices rising all around, in everything else. From groceries to electricity. All of our bills are going up and the carriers are trying to catch that wave. Inflation sucks and it is very high in the US right now.

Reagan once said, “Are you better off than you were 4 years ago? Is it easier for you to go and buy things in a store than it was 4 years ago?” It applies to most everyone in telecom, especially in rising unemployment and lower wages in our industry. Most people are looking to save what they can where they can, and the mobile plan has a bullseye on it.

Summing it up:

Speculation:

  • Rumors suggest US Cellular might sell its telecom business, a process that could span years due to regulatory scrutiny.
  • Employees’ futures are uncertain, with some potentially secure, while others may need to seek opportunities elsewhere.

Stakeholders:

  • Site contractors in rural areas could see growth due to less competition.
  • Equipment manufacturers’ success will vary based on the acquiring company’s preferences.

Regulatory and Customer Impact:

  • The FCC may impose conditions on the deal, affecting T-Mobile and Verizon’s operations.
  • Customers might face increased bills post-acquisition.

Acquisition Dynamics:

  • Verizon aims to acquire spectrum, customers, and assets to enhance coverage.
  • T-Mobile seeks expansion into uncovered areas, aiming for a comprehensive network.

Workforce Considerations:

  • US Cellular employees may experience a transition period, with job security tied to their expertise.
  • General contractors could benefit from increased work during the network integration phase.

Industry Perspective:

  • The telecom sector’s consolidation is influenced by the Telecom Act of 1996, favoring larger players.
  • The FCC’s review will be pivotal in determining the merger’s impact on competition and market dynamics.

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