U.S. Cellular pulls out of Chicago, sells market to Sprint
BY FRANCINE KNOWLES Business Reporter firstname.lastname@example.org November 7, 2012 7:24AM
U.S. Cellular store, 120 E. 35th Street, Wednesday, November 7, 2012 . | John H. White~Sun-Times
Updated: December 9, 2012 7:25PM
U.S. Cellular is dropping Chicago and other markets in parts of the Midwest, selling them to Sprint Nextel, to focus its business, and its launching of 4G technology in places where it is a bigger player.
Overland Park, Kan.-based Sprint Nextel Corp. will buy the markets — spectrum and 585,000 customers — in Illinois, Indiana, Michigan, Missouri and Ohio, which is 10 percent of U.S. Cellular’s customer base. The $480 million deal is part of a strategic plan to focus on its stronger markets.
The move will cost 640 jobs in the Chicago area, including 160 in the city, among 980 to be cut in the Midwest.
U.S. Cellular will continue to have 1,400 associates in the Chicago area — including 860 at its headquarters, where no cuts are planned — the company said. But upon completion of a transition services period, the majority of its retail, engineering and business support associates will lose their jobs, according to the company.
During the transition period, the company may keep open certain retail locations in the affected markets and will provide certain transition services to Sprint, U.S. Cellular said. But over time, both company- and agent-owned stores will be closed.
The markets it’s pulling out of generated service revenues of roughly $340 million, or 11 percent of reported consolidated service revenues for the nine months ended Sept. 30, the company said. But the markets experienced an operating loss after all direct and indirect costs.
“These are markets that we’ve pretty much always had a lower market position, maybe [the] No. 4, No. 5 player,” U.S. Cellular President and Chief Executive Officer Mary Dillon said in a Chicago Sun-Times interview. “We’ve decided that we really need to be in markets where we have a stronger market position, No. 1 or No. 2, to really focus on future growth.”
The company has provided service in the Chicago market since 2002.
“The cost to compete in the wireless industry is pretty different actually than in 2002,” Dillon said. “Costs to compete continue to grow. So for us to really focus our resources on things like launching LTE [4G technology] and making sure we have cutting-edge devices, putting those in places where we have a stronger position, sets us up for future growth.”
The company will continue to serve more than 5.2 million U.S. customers.
The transition and exit costs are expected to reduce facilities expenses by more than $3 million annually beginning in 2014.
Last month, Sprint struck a deal to sell 70 percent of itself to Japanese cellphone carrier Softbank Corp. for $20 billion. Though the deal hasn’t closed yet, Softbank has lent Sprint money, giving the previously cash-strapped carrier freedom to pursue deals.
Also on Wednesday, U.S. Cellular said its third-quarter net income dropped 43 percent, as the company subsidized sales of new smartphones. It earned $35.5 million, or 42 cents per share. Revenue rose 3 percent to $1.14 billion.