According to reports from The Wall Street Journal, T-Mobile is nearing a $2 billion deal to acquire a significant chunk of US Cellular’s operations and wireless spectrum licenses across its 21-state coverage area.

Meanwhile, Verizon is engaging in separate negotiations aimed at snapping up US Cellular’s remaining assets, although those talks are still at a fairly early stage.

The potential dismantling of US Cellular between the two industry titans showcases their appetite for new spectrum and infrastructure to further build out their 5G networks and fortify market dominance.

However, it also reflects the increasing challenges that regional carriers are facing to stay competitive in an increasingly consolidated US wireless market.

A $2 Billion Spectrum Grab by T-Mobile and Verizon

verizon and t-mobile to acquire us cellular assets

T-Mobile’s portion of the deal to buy US Cellular assets could be announced within weeks, according to sources familiar with the matter.

While the precise details of the agreement are still being finalized, the reported $2 billion price tag highlights how much carriers are willing to pay these days for valuable spectrum holdings.

US Cellular’s provides coverage to 30 states and over 51 million people. This makes it an attractive target to well-established telecom giants race who would like to build up their spectrum to fully deploy 5G networks across the country.

Research Firm Values Entire Spectrum Portfolio of US Cellular at $3.2 Billion

According to a blog post from New Street Research published in August last year, even though the controlling group – the Carlson family – was not interested in selling, they likely changed their minds as they saw the strategic advantages of partnering with national carriers.

Jonathan Chaplin, the head of New Street’s US Communications Services research team, emphasized that T-Mobile was among the best candidates to scoop up the company’s 700MHz spectrum as it helped them plug some holes within their network.

Meanwhile, Verizon was among the best candidates mentioned to acquire the Cellular licenses as that would increase their coverage of the entire US population from 87% to 90.1% as per the firm’s estimates.

Back in August, New Street valued the entire spectrum owned by US Cellular at $3.2 billion. If we take into consideration the $2 billion price tag that Verizon is currently offering, Verizon and other carriers like AT&T may offer another $1 billion or so to the Carlson family to fully acquire the remaining assets.

“All spectrum is valuable to all carriers. It is often cheaper for carriers to deploy spectrum in bands that they have already deployed. The most valuable licenses will be those that plug holes in bands that are strategically important to the carrier,” Chaplin commented.

With US Cellular’s extensive tower infrastructure and fixed assets excluded from both deals, the intricate breakup strategy appears to be designed to appease regulators’ antitrust concerns.

By dividing the spoils, T-Mobile and Verizon are most likely hoping to frame the arrangements in a way that seems beneficial to foster competition in local markets rather than another move to consolidate power in the hands of two companies.

US Cellular Calls It Quits Amid Brutal Competition

For US Cellular and its parent corporation TDS, selling off the wireless business represents a wise exit strategy from an increasingly cutthroat and capital-intensive sector.

Once a more fragmented landscape, the US wireless market has been progressively consolidating to the point that only three large national carriers hold the most power and market share – Verizon, AT&T, and T-Mobile.

Those three behemoths control roughly 90% of the nation’s wireless subscriptions, leaving regional companies with relatively dismal resources little room to effectively compete on pricing or network rollouts.

During the first quarter of 2024, US Cellular lost 47,000 users in its handsets segment and managed to add just 3,000 in the connected devices segment. Meanwhile, its Fixed Wireless subscriber base increased by just 10,000 new users compared to the previous quarter and by 42.5% compared to the previous year.

US Cellular’s spectrum assets are considered its most valuable components for the purposes of a deal. If ultimately absorbed entirely by T-Mobile and Verizon, the company’s subscribers would simply shift over to the acquiring carriers’ networks. This facilitates the completion of a proposed acquisition.

US Cellular also owns an extensive physical network infrastructure of over 4,000 cell towers. However, those fixed assets were explicitly excluded from the recently reported deal negotiations, suggesting that infrastructure will be monetized separately if a deal proceeds.

Mega-Mergers Have Been the Norm in the Capital-Intensive Telecom Sector for Decades

Wireless subscriptions market share by carrier in the U.S. from 1st quarter 2011 to 3rd quarter 2023
Wireless subscriptions market share by carrier the U.S. – Source: Statista

Should both T-Mobile and Verizon proceed with the acquisition of US Cellular’s assets, this will be the latest transaction in a long list that has resulted in an industry-wide consolidation that has massively reshaped America’s telecom sector in the past decades.

In fact, the two largest national carriers were formed from previous mega-mergers. Verizon’s roots are traced back to the 2000 unification of Bell Atlantic and GTE. Meanwhile, T-Mobile was formed after the acquisition of VoiceStream Wireless – a company founded in 1994 – by Deutsche Telekom AG in 2001.

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Nearly 20 years later, T-Mobile completed a $26 billion merger with Sprint Corporation after a long approval process that forced the company to make concessions to appease regulators’ concerns.

Finally, and more recently, T-Mobile closed a $1.3 billion acquisition of Mint Mobile and brought in no less than 3 million users after the transaction was settled.

As for Verizon, the company acquired TracFone Wireless, a 28-year-old telecom company, in September 2020 and immediately brought in over 21 million subscribers in a bid that helped it grow its prepaid mobile segment.

Both Verizon and T-Mobile’s purchase of US Cellular’s interest represent a continuation of the current race in which the biggest telecom companies have engaged to add more spectrum, customers, and infrastructure to their portfolios.

The FTC Has Challenged Various Multi-Billion M&A Transactions in 2024 Already

Despite the concessions made by both Verizon and T-Mobile to avoid sounding the alarms at the Federal Trade Commission (FTC), the Biden administration has been adopting an increasingly hostile attitude toward such massive acquisitions.

Just to cite a few examples, the FTC has blocked three big M&As this year from multiple sectors. The first notable case was Kroger’s acquisition of Albertsons as part of a deal valued at $24.6 billion.

The Commission cited concerns regarding workers’ stability, narrowing consumer choices, and price markups resulting from the disappearance of a direct competitor to Kroger that forced the latter company to maintain healthy pricing practices to entice consumers.

Meanwhile, in late April, the Commission moved to block the acquisition of Capri Holdings by Tapestry, the parent company of the popular Michael Kors brand as they believed the transaction would give Tapestry immediate dominance over a specific market that it previously had to compete for.

This deal threatens to deprive consumers of the competition for affordable handbags, while hourly workers stand to lose the benefits of higher wages and more favorable workplace conditions,” commented Henry Liu, the Director of the FTC’s Bureau of Competition in a press release.

Other prominent cases that the FTC has challenged recently include Meta Platforms (META) acquisition of Within, Microsoft’s proposed acquisition of Activision-Blizzard and Altria’s acquisition of Juul Labs.

The sheer lack of competitors in the telecom industry will likely only draw more attention from the FTC as regional players have already been bought up for the most part and only 3 national companies remain.

It remains to be seen if the FTC could move to block Verizon and T-Mobile’s acquisitions of US Cellular. However, it has become quite obvious that the telecom market is achieving unhealthy levels of consolidation, which means that it may be a matter of time for these deals to appear on the FTC’s radar – if they haven’t already.