Cincinnati Bell's decision to sell its wireless spectrum to Verizon Wireless (NYSE:VZ) for $210 million and shutter its wireless business was necessary because the unit just wasn't succeeding in the market, according to Cincinnati Bell CEO Ted Torbeck.
"Our business has been in decline for five or six years. We've been harvesting the business really ever since we got into data centers," Torbeck told the Cincinnati Business Courier. "This is absolutely the right time to make this deal. It was probably the highest value we could get at this point in time."
Indeed, Cincinnati Bell's wireless subscriber base dropped from 385,000 in the first quarter of 2013 to 340,000 in the fourth quarter. In February, Cincinnati Bell said that it was reviewing strategic alternatives for the wireless business.
The decision by the ninth-largest U.S. wireless carrier to sell reinforces the notion that it's simply difficult for Tier 2 and 3 operators to compete against national Tier 1 players, especially in markets in which they both compete. That's largely because many small players do not have the spectrum and resources to build out robust LTE networks.
Torbeck said there will be no immediate impact to Cincinnati Bell's business or residential wireless customers. "We don't want customers to do anything," he said. "It will take four to six months to get this deal complete, and once it is, we'll handle each one individually depending on where they are on their contract."
Cincinnati Bell Wireless, or CBW, will sell to Verizon all of its wireless spectrum licenses for $194 million in cash. CBW holds licenses for PCS, AWS and 700 MHz spectrum in Ohio. The deal needs to be approved by the FCC and Department of Justice, something the companies expect to happen in the second half of the year.
Verizon Wireless spokeswoman Robin Nicol said that once the deal closes "the spectrum will be used to expand our 4G LTE network. Any spectrum that we're acquiring these days is used for that." Verizon disclosed in March that fully 70 percent of its data traffic is now going over its LTE network, which now covers around 305 million POPs.
"Part of our spectrum strategy is to acquire spectrum that is useful for us, whether it's through an official FCC auction or if it's in the secondary market," Nicol said.
CBW said it expects to continue to provide wireless service for the next eight to 12 months and that its customers do not need to do anything right now. The company said it will, for a nominal charge, lease back the spectrum it is selling for a period of time following the closing of the deal, and will then wind down its wireless network operations and help customers transition their service to Verizon or other carriers.
Cincinnati Bell is focusing more on its fiber-optics and IT businesses. The carrier's wireless revenue for 2013 was $202 million, down 17 percent from 2012. The company's wireless division employs about 175 people out of a workforce of 3,000, according to the Cincinnati Enquirer. Torbeck told the Enquirer that the company will do "everything we can" to move wireless employees into growing areas of the business when the sale is completed.
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