Sprint (NYSE: S) wholesale partner nTelos Wireless is likely going to benefit financially from exiting some of its markets, but its earnings will remain under pressure, according to financial analysts. The company could benefit from selling some its towers or excess spectrum, they added, but it's unclear when that will occur.
In a research note, Jefferies analysts Tudor Mustata, Mike McCormack and Scott Goldman wrote that the company's so-called "Eastern Markets" appear to be "subscale, with roughly breakeven EBITDA characteristics. NTelos plans to enter an agency relationship with another carrier for the subscribers. We view the footprint rationalization as a long-term positive as the company should garner better returns through more targeted investments."
NTelos said last week it is selling off spectrum and its retail business in markets in eastern Virginia to focus on markets in western Virginia and West Virginia where it has a stronger retail presence and benefits from a network deal with Sprint. As part of the shift in priorities, nTelos is selling 1900 MHz PCS spectrum in its Eastern Markets to T-Mobile US (NYSE:TMUS) for $56 million.
The carrier's Eastern Markets include Hampton Roads/Norfolk and Richmond, Va. NTelos said it will wind down its network and retail operations in its Eastern Markets over the course of the next year, and it expects to transition its subscribers in those areas to another carrier.
For 2014, nTelos reiterated that it expects adjusted EBITDA of between $128 million and $132 million and capital expenditures of around $105 million. In terms of a preliminary outlook for full-year 2015, the company is expecting a lower adjusted EBITDA, of between $100 million and $108 million.
NTelos said its outlook reflects its current view of the competitive retail wireless market, the estimated decline in billed revenue its expects as a result of its network deal with Sprint, and the fact that savings it will gain from exiting some markets will be offset by having fewer customers.
The Jefferies analysts said the carrier's 2015 EBITDA guidance was below their expectations and those of other Wall Street analysts. They were expecting a figure between $123 million and $126 million. "Given the breakeven nature of the eastern assets, management attributed the drop to reassigned overhead and higher competitive pressures," they noted. NTelos is likely facing continued strong competition from Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T) in its remaining markets, they noted.
However, the analysts added, with more focused network investments, they expect nTelos' competitive footing to improve over time. The company has said it may look to sell other non-core assets, including its owned towers and undeployed spectrum.
The company's share price could benefit from a tower sale, the Jefferies analysts noted. A sale of excess AWS spectrum could similarly provide a benefit but the analysts think such a deal would occur only after nTelos struck a roaming partnership with T-Mobile.
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