T-Mobile has agreed to sell its Wireline Business to Cogent Communications (NASDAQ: CCOI), a facilities-based network provider, for a purchase price of only $1.00. At the same time, T-Mobile has agreed to utilize IP transit services delivered by the Wireline Business for 4.5 years following closing, meaning that T-Mobile is effectively paying Cogent $700 million to offload this “legacy” unit.
Cogent is acquiring T-Mobile’s Wireline Business, comprising the legacy Sprint U.S. long-haul fiber network, which provides the company with an owned network asset. T-Mobile previously acquired this business as part of its $31.8 billion purchase of Sprint Corporation, which closed in April 2020.
Upon completion of the transaction with Cogent, T-Mobile will focus on providing wireless services, including 5G, to consumers and enterprises as the core of its future growth strategy. As part of the sale of its Wireline Business, T-Mobile expects to recognize a total pre-tax charge of ~$1 billion in Q3 2022, as T-Mobile will mark-down the carrying value of the unit and establish a liability for future contractual payments.
T-Mobile’s Wireline Business provides wireline communication services to domestic and international customers via the legacy Sprint Wireline network, formerly known as the Sprint Global Markets Group. Previously, the operation of the legacy Sprint CDMA and LTE wireless networks were supported by the legacy Sprint Wireline network. However, during Q2 2022, T-Mobile retired the legacy Sprint CDMA network and began the shutdown of the LTE network.
Overall, the T-Mobile Wireline Business generated $560 million of revenue in 2021 and comprised 1,300 employees. However, this “legacy” business has been experiencing revenue declines of ~10% per year and Cogent expects that this rate of decline will persist between signing and closing of the transaction.
As such, by closing, Cogent anticipates that T-Mobile’s Wireline Business will be producing a revenue run-rate of $450 million, driven by a decision to end a number of non-core products. In terms of EBITDA, the wireline unit will be losing about -$180 million of EBITDA in Year 1 and Cogent expects to reduce this negative performance to be less than a -$80 million EBITDA loss in Year 2.
Post-closing, Cogent will assume full operating responsibility for T-Mobile’s Wireline Business and facilities.
