Sprint (NYSE: S) and its wholesale partner nTelos Wireless changed and expanded their wholesale agreement to give each other access to their respective LTE networks through 2022. The deal is the first significant one Sprint has made with a smaller carrier since it announced partnerships in March with the Competitive Carriers Association and the NetAmerica Alliance to expand LTE roaming deals.
Under the revised terms Sprint and nTelos agreed to, nTelos will continue to be the exclusive network provider for Sprint services in its western Virginia and West Virginia service area, which covers around 2.1 million POPs. Sprint customers will have access to nTelos's recently launched LTE network and nTelos will have access to Sprint's 800 MHz, 1900 MHz and 2.5 GHz spectrum throughout the territory. Additionally, nTelos retail customers will also have access to Sprint's nationwide LTE network outside the nTelos network footprint.
NTelos is the nation's seventh largest wireless carrier, counting roughly 468,000 customers. But the carrier said the teaming with Sprint will help both nTelos and Sprint compete more effectively. "I think we can all agree that competition is good for our industry, and I don't think we'll have competition if we don't close the network gap with the big two," nTelos CEO James Hyde said on a conference call with investors.
As part of the deal, nTelos also said it plans to expand and build its LTE network in the western Virginia and West Virginia territory to specifications that are aligned with Sprint's Network Vision network modernization program. Further, nTelos also agreed to make "future feature upgrades," presumably for LTE Advanced services and beyond. As part of that upgrade, nTelos agreed to substantially complete the network enhancements no later than May 2017 and estimated that the upgrades will cost between $150 million and $175 million. The buildout is expected to be fully funded from existing cash balances and cash generated from operations, nTelos said. However, nTelos said it will not pay its planned dividend to shareholders and will instead use those funds to build out its LTE network.
Interestingly, Sprint agreed to work with its vendors to provide nTelos with more favorable pricing for devices and network equipment. Hyde said that the deal sets the stage for further cooperation with Sprint beyond the new agreement.
Hyde also said the deal will not affect nTelos' trial of fixed wireless technology with Dish Network Dish Network (NASDAQ: DISH). Dish and nTelos are close to launching a trial network for fixed wireless TD-LTE service. The companies hope to add commercial users to the network in July.
The nTelos service area includes the markets of Charlottesville, Danville, Lynchburg, Martinsville, Roanoke and Staunton-Waynesboro, Virginia; Beckley, Bluefield, Charleston, Clarksburg/Elkins, Fairmont, Huntington and Morgantown, West Virginia; and Ashland, Kentucky.
NTelos first launched LTE in the fourth quarter of 2013 and the company plans to launch LTE services in more markets during May and June, and by the end of June expects to cover around 2.5 million POPs with LTE, which is nearly 60 percent of its year-end goal of 4.2 million POPs. Hyde said the company's current LTE network can be transitioned under the new agreement and does not need to be ripped out.
As a result of the agreement, nTelos now expects to report a lower adjusted EBITDA for 2014 of between $128 million and $135 million (compared to a previous estimate of $140 million to $150 million). Additionally, nTelos said it expects its 2014 capital expenditures to be higher, between $110 million and $120 million (compared to a previous range of $85 million to $95 million).
The deal with nTelos builds on what Sprint announced in late March, which Sprint hopes will encourage rural wireless carriers to build LTE networks that Sprint's customers will be able to roam onto. Under Sprint's new partnership with the CCA, Sprint will use CCA's data hub to allow CCA members to ink reciprocal roaming agreements with Sprint. Sprint and U.S. Cellular (NYSE:USM) have already conducted successful roaming tests with CCA's data roaming hub.
Sprint also said it will add 700 MHz Band 12 capabilities to some of its devices starting next year--spectrum that the carrier itself doesn't own but that many smaller rural carriers do and use for LTE.
Sprint's plans are similar to Verizon Wireless' (NYSE: VZ) LTE Rural America program, which the carrier established in 2010 in order to accelerate its LTE network buildout in rural areas. Under Verizon's program, rural carriers can lease Verizon's 700 MHz spectrum and use it to build out an LTE network. At least 20 operators have signed on to Verizon's LTE Rural America program.
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