Sprint Nextel Corp. dipped into its new $3.1 billion cash hoard on Wednesday to buy a clump of U.S. Cellular Corp.’s wireless business and its subscribers in the Midwest.
The $480 million deal covers 585,000 customers of Chicago-based U.S. Cellular in parts of five states. The territory includes St. Louis and U.S. Cellular’s home market of Chicago.
Analysts said the deal made sense for Sprint, which also gets additional wireless spectrum. Spectrum is the licensed airwaves that cellular networks need to carry their customers’ phone calls, text messages and data.
The deal is Sprint’s first since raising $3.1 billion last month from Tokyo-based SoftBank Corp., which has agreed to buy a 70 percent stake in Sprint for $20.1 billion.
Sprint CEO Dan Hesse is expected to talk about the deal during an industry conference today. In a statement Wednesday, Hesse said the deal “significantly increases Sprint’s network capacity” in the areas covered by the agreement.
The subscribers, who are mostly under two-year contracts with U.S. Cellular, also are an important part of the transaction. But, as one analyst noted, they aren’t compelled to stay put waiting for the deal to be reviewed by federal officials and completed in the middle of next year.
“There is the risk that many of these subscribers bolt” before being shifted to Sprint, Craig Moffett at Sanford C. Bernstein & Co. wrote.
He also said Sprint was likely to work to move the subscribers to its own network after the deal was completed. Sprint and U.S. Cellular use the same wireless technology in their phones.
U.S. Cellular said it agreed to sell the 10 percent piece of its customer base because it was losing money and shedding contract customers in the territory that covers parts of parts of Illinois, Indiana, Michigan, Missouri and Ohio.
The two companies have advised customers that they need not do anything and will continue to receive their normal service.
Sprint has agreed to pay U.S. Cellular to continue operating its network in the area for up to two years after the deal is completed. It also will pay U.S. Cellular’s costs to decommission its network in the area.