Sprint Nextel sells cell towers to reduce debt
Sprint Nextel is selling more than 3,000 cell phone towers in a deal that will bring in $670 million in cash for the beleaguered wireless operator.
Sprint Nextel announced Wednesday that it plans to sell most of its cell phone towers to TowerCo. Sprint will then lease access to the towers to run its cellular phone network as well as build the new 4G WiMax network it's working on as part of the new Clearwire venture.
Sprint didn't disclose the specific number of towers it will sell and the final purchase price won't be determined until the deal closes in about 90 days.
The cash Sprint gets from the sale of these towers will likely go toward paying down the company's $24 billion debt. But even at a price tag of $670 million, this is still a drop in the bucket. The sale does signify, however, Sprint's willingness to shed nonstrategic assets in an effort to get back on its feet, said Chris King, a principal analyst with Stifel Nicolaus.
King said the sale of the cell phone towers is not unusual. Over the past five years, most of the big wireless operators, including AT&T and Verizon Wireless, have sold their cell phone towers to companies, such as American Tower, Crown Castle International, and TowerCo., which specialize in cell phone tower management. These companies typically allow different carriers to lease access to the same tower, especially in densely populated areas where it's difficult to build new towers.
"This is a pretty standard industry-wide practice," he said. "From a service provider standpoint, it doesn't make sense for wireless operators to own these assets. It's really more of a real estate holding."
Sprint, the third largest cell phone operator in the U.S., has been losing customers at an alarming rate over the past several quarters. Under the leadership of its new CEO Dan Hesse, the company has focused on improving its core cellular business. Earlier this year it sold off its WiMax business unit to Clearwire, and it launched an aggressive marketing campaign to help reshape its public image. The company has also introduced new devices, such as the Samsung Instinct, in an effort to win new subscribers.
While these efforts are all positive steps, it will take a long time to see any tangible benefits. That said, King said he expects Sprint to report fewer subscriber losses for the second quarter than it did for the first quarter.
In the meantime, Sprint is getting its house in order. Some experts have speculated that the company is looking to sell its Nextel business unit, which was acquired in 2005. The Nextel network, which uses a different technology than what is used on Sprint's original wireless network, has been the source of much of the company's troubles over the past several quarters.
But King emphasized that the sale of the cell phone towers is likely not a precursor to selling off Nextel .
"I don' think the sale of the cell towers really changes the dynamic of a potential Nextel spin-off," he said. "It's likely the radios used for Sprint's CDMA network and Nextel's iDEN network are collocated on the same towers, so it just means that whoever might buy the Nextel business would have to negotiate with TowerCo., rather than with Sprint."