Verizon Wireless buying spectrum and assets from Cincinnati Bell for $210 million

Cincinnati Bell Wireless has entered into an agreement to sell its spectrum holdings and wireless infrastructure to Verizon Wireless. The deal, valued at $210 million will see Cincinnati Bell's customers transferred to Verizon "or other wireless providers" over the next 8-12 months, during which time the carrier will lease back that spectrum and those towers for "a nominal fee".

With 340,000 subscribers, Cincinnati Bell is the 9th largest carrier overall in the United States, and the fourth largest regional carrier in the nation. After the wind-down of their cellular service, Cincinnati Bell will be left to focus on their FiOptics fiber internet and television service.

While Cincinnati Bell does have a loyal customer base in the Ohio-Kentucky-Indiana region around Cincinnati, they've struggled to compete against the national wireless behemoths. Citing the costs that if would take to upgrade their network, Cincinnati Bell opted to not upgrade their network to support LTE, instead focusing on improving their HSPA+ network, which has consistently offered better speeds in their coverage area than LTE from competitors, but struggled with roaming once users left the Cincinnati metro area.

Verizon has spent considerably recently in efforts to bolster their network. In addition to the purchase of Cincinnati Bell's wireless assets for $210 million, last year Verizon put down $130 billion to buy out Vodafone's 45% stake in Verizon Wireless and $3.6 billion to buy spectrum across the nation from cable providers Comcast, Time Warner, Cox, and Bright House.

Verizon runs a CDMA+LTE network, while Cincinnati Bell's network is purely GSM-based.

It's become increasingly difficult for regional carriers to compete effectively with the giants of AT&T, Sprint, T-Mobile, and Verizon. Does the capitulation of a regional power like Cincinnati Bell spell the coming end of regional carriers in the United States?

Press release:

Cincinnati Bell to Sell Wireless Spectrum Licenses

CINCINNATI--(BUSINESS WIRE)--Apr. 7, 2014-- Cincinnati Bell (NYSE:CBB), a leader in telecommunications and broadband networking services, today announced that it has entered into agreements to sell its wireless spectrum licenses and certain related assets to Verizon Wireless for cash and an assumption of certain Cincinnati Bell liabilities with a total value to Cincinnati Bell of approximately $210 million.

“We appreciate the loyal support from our Cincinnati Bell Wireless customers over the last sixteen years, and we remain committed to providing them with wireless service and support throughout the transition period,” said Ted Torbeck, President and CEO of Cincinnati Bell, adding that it is not necessary for customers to take any action at this time.

Cincinnati Bell Wireless (“CBW”) will, for a nominal charge, lease back the spectrum it is selling for a period of time following the closing of the purchase transaction, during which it will wind down its wireless network operations and assist its wireless customers in transitioning their service arrangements to Verizon Wireless or other wireless providers. CBW will notify its customers with further details regarding this transition assistance around the time of the closing, which is expected to be in the second half of 2014.

Transaction Detail

CBW has agreed to sell to Verizon Wireless all of its right, title and interest in its wireless spectrum licenses for cash consideration of $194 million. In addition, Verizon Wireless will assume certain tower lease obligations. CBW expects to continue to provide wireless service for 8-12 months from the time of signing. The cash flows from these ongoing operations are expected to largely offset the anticipated one-time fees associated with winding down the business. The total value of the deal is estimated to be 4.5 and 6.0 times 2014 and 2015 CBW Adjusted EBITDA consensus wireless estimates respectively.

Concurrently, Verizon Wireless has entered into a separate agreement to assign its rights to acquire the spectrum licenses being sold by Cincinnati Bell to Grain Management, LLC, a private equity firm that invests in the media and telecommunications sectors. Verizon Wireless will then lease certain of the spectrum licenses from Grain Management. The Cincinnati Bell tower lease arrangements to be assumed by Verizon Wireless are not included in its agreement with Grain Management.

Cincinnati Bell anticipates that, as a result of the transaction, it will absorb certain overhead and shared service costs currently attributable to its wireless operations. Cincinnati Bell is currently in the process of developing strategies to minimize these costs and will provide additional detail prior to or shortly after the transaction closes.

“This transaction is an important step toward increasing focus on our growing strategic product base,” commented Torbeck. “It has become economically challenging for us to invest in our wireless business at the levels necessary to deliver best-in-class service to our customers. This transaction not only ensures that our customers have access to top-tier wireless service, but it also gives us increased flexibility to meet their growing demand for our Fioptics suite of products.”

The purchase transaction is subject to customary closing conditions, including regulatory approval by the Federal Communications Commission. Stephens Inc. is acting as sole financial advisor to Cincinnati Bell. Cravath, Swaine & Moore LLP is acting as legal counsel, and Bingham McCutchen LLP is acting as regulatory counsel to Cincinnati Bell in this transaction.

Source: Cincinnati Bell