T-Mobile Unloads Sprint Wireline to Cogent for $1

T-Mobile CEO Mike Sievert, Source: T-Mobile

T-Mobile US unloaded its unwanted Sprint wireline holdings, coaching a deal out of Cogent to purchase the extensive assets for the mighty sum of $1. T-Mobile US is also taking a $1 billion charge on those assets to help pay for an agreement to spend $700 million for “services” running on that network over the next four-and-a-half years that the carrier is unsure it will ever use.

The deal will see Cogent take on the former Sprint wireline business, that includes global MPLS and dedicated internet access with service in more than 155 countries; global SIP trunking and SIP toll-free voice services; a unified communications suite, including a workplace-as-a-service platform; managed network and security solutions; web-based network management tools; and wireless and wireline access options. T-Mobile US gained those deals as part of its Sprint acquisition in 2021.

Those operations generated around $560 million in revenues last year, or nearly equal to the $590 million Cogent posted last year from its current operations.

Cogent is also taking on approximately 1,300 employees, which furthers T-Mobile US’ recent job culling efforts.

Cogent explained that the assets are a “strategic fit” into its current operations. It plans to replace its current leased network with the Sprint assets and expand its product set to include optical wave transport services. It also plans to migrate customers from legacy MPLS VPN services to Ethernet or SD-WAN services.

Cogent Gains From T-Mobile’s Tough Math

T-Mobile CEO Mike Sievert said during the carrier’s most recent earnings call those assets were no longer core to the carrier’s plans.

“You may have seen we made some announcements that we are no longer using that asset to support our wireless business,” Sievert explained at that time. “We are obviously conducting a review as to the best way to manage that asset. It’s a terrific product with a deep, deep legacy in our company and it’s important that we make the right decisions there for the long haul, taking into account how the market has changed over time.”

T-Mobile US CFO Peter Osvaldik explained this week during a Bank of America Securities event that there was “nothing wrong” with the Sprint assets, but that the carrier was more focused on 5G. He also explained that once the deal closes the carrier could see some marginal earnings before interest, taxes, depreciation, and amortization (EBITDA) “upside.”

“Given that we are not fully utilizing the assets currently they are a slight drag from an EBITDA and free cash flow perspective for us,” Osvaldik said.

The carrier will also see a drag from that $1 billion charge tied to the service agreement as part of the deal. T-Mobile US will pay $350 million of that $700 million over the first year after the deal closes, which is expected in the second half of next year, with the remaining amount spread out over the term of the agreement. That amount will be paid despite T-Mobile US not expecting to actually use the services.

“We don’t currently foresee a path to utilize those, hence the charge, but of course we are going to continue to look at ways over the course of the four-and-a-half-year agreement,” Osvaldik said.

The executive did add that the deal won’t impact the carrier’s 2022 guidance, which it just increased due to a strong second quarter.

That strong guidance has bankrolled a number of recent T-Mobile US expenses.

The carrier is currently on the hook for $3.5 billion to pay for low-band spectrum it’s currently leasing and is core to its 5G network coverage. And it agreed to pay $500 million toward rectifying damage from a cyberattack that hit internal records and that one analyst called “the largest carrier breach on record.”

Despite those bills, parent company Deutsche Telekom wants to increase its stake in the U.S. operations. DT CEO Timotheus Hottges noted during the carrier’s most recent earnings call that it wanted to boost its ownership stake above 50%.