How Might the T-Mobile / UScellular Merger Un-Fold?
By Kevin Estes
Proposed Merger
On May 28th, T-Mobile announced it had “agreed to acquire substantially all of UScellular’s wireless operations.”
This article considers how the merger may play out.
Disclaimer
I haven’t worked at T-Mobile for over two years and am not affiliated with the company.
Although some current and former T-Mobile employees are clients, they did not provide any of the information used in this article.
Similarly, I’m connected with thousands of T-Mobile employees on social media. However, I didn’t reach out to any of them about this merger.
I have no material insider information about T-Mobile or this merger. The public sources I used are referenced below.
Chicago Ties
Although I live near near T-Mobile’s headquarters in Washington state, I grew up in Illinois. Besides a brief stint in Texas, I lived in the Land of Lincoln from age two until 18.
My brother and I graduated from New Trier High School in Winnetka, IL. He and his family recently sold their home in Barrington. Our mom still lives on the North Shore.
Merger Masters
T-Mobile is good at mergers. Just ask them!
The integrations of MetroPCS in 2013 and Sprint in 2020 have been noted as two of the most successful merger combinations in wireless history
MetroPCS
T-Mobile announced the merger with MetroPCS in October 2012. It closed in May 2013 and was expected to achieve $6 to $7 billion in synergies.
Sprint
The T-Mobile / Sprint merger was announced in April 2018 and closed in April 2020.
The U.S. Department of Justice (DOJ) required some divestitures and the U.S. Federal Communication Commission (FCC) added several conditions before approving the transaction.
The estimated synergies of the merger in 2022 came to $6 billion:
$2.5 billion in selling, general, and administrative (SG&A) expense reductions
$2.2 billion in cost of services expense reductions, and
$1.3 billion in avoided network build costs.
Mint/Ultra
T-Mobile announced it was merging with Mint and Ultra Mobile in March 2023. The merger with Ryan Reynold’s company closed earlier this year in May 2024.
Potential Timeline for UScellular Merger
T-Mobile expects the merger to occur in “mid-2025.”
Based solely on that estimate and historical merger dates, I’d expect the merger to complete on May 1st, 2025. That timeline assumes no significant regulatory delays.
Larger Buying Smaller
Size matters with mergers. T-Mobile is 15-20x the size of UScellular.
Number of employees:
2023 revenues:
T-Mobile $79 billion
UScellular $4 billion
Deal Terms
The terms of the deal may influence how the merger plays out.
It’s important to know that both T-Mobile and UScellular are majority owned by other companies.
DT Owns 51% of T-Mobile
As of April 19, 2024, Deutsche Telekom AG (DT) owned 50.4% of the outstanding T-Mobile US, Inc. (TMUS) common stock.
On Monday, Deutsche Telekom acquired another 0.6% of T-Mobile (TMUS) shares using options from SoftBank - Sprint’s former owner.
TDS Owns 83% of UScellular
As of March 31, 2024, Telephone and Data Systems, Inc. (TDS) owned 83% of UScellular.
Cash and Debt, Not Stock
T-Mobile’s previous mergers leveraged stock:
MetroPCS was a reverse stock merger
Sprint was a regular stock merger
Mint/Ultra was 39% cash and 61% stock
The UScellular proposed merger isn’t being funded with stock:
T-Mobile will pay approximately $4.4 billion for the assets being acquired from UScellular in the transaction in a combination of cash and up to $2.0 billion of debt to be assumed by T-Mobile through an exchange offer to be made to certain UScellular debtholders prior to closing.
T-Mobile is buying UScellular’s business and spectrum - not its towers.
Consider a family that owns a restaurant, including the building.
It’s like T-Mobile is buying the restaurant but not the building. UScellular will keep the towers and rent them to T-Mobile.
Assuming Debt
T-Mobile’s credit rating is higher than UScellular’s. Its unsecured debt is investment grade. UScellular’s is not.
However, UScellular got long-term debt when interest rates were low.
How long?
50 years!
In 2020, UScellular marketed $1.5 billion of debt:
April 17: $500 million due 2069 at 6.25%
September 9: $500 million due 2070 at 5.5%
December 22: $500 million due 2070 at 5.5%
In the first quarter of 2024, UScellular had about $3 billion of long-term debt. As of the end of 2023, $2.2 billion of it was due after 2028 at a weighted average of 6.2%.
Exchanging the debt may be win-win:
debtholders get a higher quality borrower since T-Mobile’s credit rating is higher than UScellular’s
T-Mobile gets very long-term debt at what may be below market interest rates
If the debtholders don’t exchange it, T-Mobile would need to pay UScellular more cash.
Use the Playbook
T-Mobile mentioned it will use its “tried-and-true playbook” for the merger.
Its tactics may include:
Expand roaming
Combine networks
Consolidate stores
Rebrand
Streamline back-office
1. Expand Roaming
The first step will likely be for T-Mobile to expand roaming for UScellular customers.
T-Mobile did so for Sprint customers within days of merging.
it did so on the first day of the merger for Mint/Ultra customers.
Expanded coverage was the first operational item mentioned in the merger press release:
Upon closing, T-Mobile’s leading 5G network will expand to provide millions of UScellular customers, particularly those in underserved rural areas, a superior connectivity experience, moving from a roaming experience outside of the UScellular coverage area to full nationwide access on the country’s largest and fastest 5G network.
2. Combine Networks
T-Mobile’s network team has previously worked to:
prioritize which spectrum and towers to keep
migrate customers to the T-Mobile network
retire the former network after customers migrate
redeploy the spectrum
Prioritize Spectrum and Towers
As of March 31, 2024, UScellular owned 4,382 towers.
T-Mobile does not appear to be buying those. Instead, it will lease space on 2,100+ towers, which will continue to be owned by UScellular.
It looks like T-Mobile selected the spectrum and towers it would like to keep before coming to terms with UScellular.
Migrate Customers
T-Mobile seems to have the same gameplan even though UScellular will continue to own the towers.
T-Mobile mentioned: (underlines added)
enhanced performance throughout UScellular's footprint from the addition of acquired UScellular spectrum to T-Mobile's network.
and
both companies' spectrum and assets will provide UScellular customers a superior connected experience on T-Mobile's industry-leading 5G network
T-Mobile may move customers off the UScellular network with the carrots of:
unlimited T-Mobile plans
no switching costs
streaming
free international data roaming
savings
55+ plans
award-winning customer service
better, more accessible in-person support
Retire Network
Based on past mergers, it might take a couple years to retire the UScellular network.
With the MetroPCS merger, T-Mobile was able to:
seamlessly bring 70% of Metro subscribers over within 15 months and complete the full migration within 26 months.
Following the Sprint merger in April 2020:
As of June 30, 2022, Sprint's LTE network has been retired
As of March 31, 2022, Sprint's older 3G (CDMA) network has been retired
However, the UScellular merger announcement included a nuance:
T-Mobile has agreed to acquire substantially all of UScellular's wireless operations. (emphasis added)
That means it’s not acquiring 100% of UScellular’s wireless operations, which could add some complexity.
Redeploy Spectrum
T-Mobile has proven its ability to re-farm spectrum from acquisitions.
As with the Sprint merger, T-Mobile will look to further develop its 5G network with three levels of spectrum:
Low band - travels far yet has slower speeds (marathoner)
Mid band - mid-range and speed (mid-distance runner)
High band - extraordinary speeds for short distances (sprinter)
3. Consolidate Stores
Optimizing stores may be T-Mobile’s next focus.
The combined company probably doesn’t need both a T-Mobile and UScellular store nearby.
Closing one will likely save on rent and other site-specific costs. Employees may relocate to other stores.
4. Rebrand
Five and a half years after the MetroPCS merger, T-Mobile rebranded it to “Metro by T-Mobile” in September 2018.
However, Metro was a growth story for the company’s prepaid business. T-Mobile expanded the brand from:
15 markets in 2013
to 77 by 2019
Four months after the completion of the Sprint merger, the company rebranded the Sprint stores to T-Mobile in August 2020.
Rebranding UScellular would leverage T-Mobile’s national marketing, including its Super Bowl ads. The timeline may be more like Sprint’s merger than Metro’s.
5. Streamline Back-Office
Unifying operations will likely unlock further synergies.
The company likely won’t need two:
benefit packages,
sets of executives,
billing systems, etc.
Benefits
It’s unlikely T-Mobile will overhaul its benefits package after the merger with UScellular.
Its benefits could look a lot like what they do today.
With a successful May Day merger, T-Mobile will probably extend benefits to UScellular employees by open enrollment in fall 2025.
Employees
Initial Growth
T-Mobile’s employees grew:
from 53,000 at the end of 2019
to 75,000 by the end of 2020, following the Sprint merger.
The count held steady at 75,000 until the end of 2021.
Reductions in Force
Employee count then fell from:
from 75,000 at the end of 2021
to 71,000 by the end of 2022
and then 67,000 by the end of 2023.
T-Mobile announced 5,000 layoffs on August 24, 2023.
According to Mike Sievert, the positions eliminated were:
primarily in corporate and back-office, and some technology roles
primarily duplicative to other roles
Take-Aways
Some notable callouts include:
T-Mobile still has 14,000 more employees after the Sprint merger than it did before (67,000 in 2023 vs. 53,000 in 2019)
Reductions started in 2022 - roughly two years after merging
Layoffs occurred in late 2023 - three and a half years post-merger
Roles in “corporate”, “back-office”, and “technology” were more prone to layoffs
Billing
There may need to be two billing systems as long as there are customers on UScellular rate plans.
Movement from UScellular to T-Mobile rate plans could follow the network migration. Not acquiring all of UScellular’s operations may impact the transition.
Culture
Culture eats strategy for breakfast.
Fortunately, T-Mobile and UScellular may be a better cultural fit than many realize.
Recent Proof
T-Mobile is headquartered near Seattle. UScellular is headquartered near Chicago. That might seem like a liberal / conservative mismatch.
However, T-Mobile successfully merged with Sprint… which was headquartered near Kansas City. KC is even more conservative than Chicago.
Also, Sprint was larger than UScellular. Fewer people may translate to less work.
The Sprint merger proved T-Mobile’s culture is flexible enough to incorporate other perspectives. Also, many of the employees who worked at Sprint are still with the New T-Mobile.
Executives
Several of T-Mobile’s senior leaders hail from American’s heartland.
Deeanne King, John Saw, and Néstor Cano joined the company with the Sprint merger. Callie Field and Jon Freier are originally from Texas.
Employees
T-Mobile already has a sizable presence in Chicago. One of my immediate teammates lived just outside the Windy City.
Seattle has grown primarily by people relocating from other parts of the country. It felt like nearly every team in T-Mobile’s Bellevue office had at least one of us who grew up in the greater Chicagoland.
I hope this helps!
If you’re interested in a review of your specific situation…
Disclaimer
In addition to the usual disclaimers, neither this post nor these images include any financial, tax, or legal advice.