T-Mobile strikes deal to unload legacy Sprint wireline biz to Cogent for $1
T-Mobile has moved forward with the anticipated unloading of its legacy wireline business, striking a deal to sell the asset to Cogent in a transaction valued at $1. However, T-Mobile will be on the hook to pay $700 million in transit services to Cogent for several years after the deal is closed.
The deal was announced nearly a month after T-Mobile confirmed it was no longer relying on Sprint's legacy wireline network to carry its traffic, and was reviewing how it was going to manage that asset going forward. That, naturally, led to speculation that T-Mobile was preparing to sell it off.
The deal for the Sprint wireline assets, a unit formerly known as Sprint Global Markets Group, provides a range of services, including MPLS (Cogent plans to convert those to VPLS and WAN), DIA (dedicated Internet access) and transit, wavelength and colocation services. The unit generated roughly $560 million in revenues in 2021 and has about 1,300 employees. In North America, the unit operates approximately 19,000 long-haul route miles, 1,300 metro route miles, and some 16,800 route miles of leased dark fiber.
Cogent is paying $1 as the purchase price (with minimal debt assumed, and no equity issued). Under the commercial piece of the agreement, T-Mobile will outlay payments for 54 months totaling $700 million for transit services (all on-net from Cogent). Meanwhile, T-Mobile expects to recognize a $1 billion pre-tax charge in the third quarter of 2022.
Update: Per the fine print in the 8K filing, T-Mobile will pay Cogent $350 million in equal monthly installments during the first year after the deal's close, and $350 million in equal monthly installments over the subsequent 42 months.
Cogent and T-Mobile expect to close the deal in or prior to December 2023.
Between now and then, T-Mobile, which has been doubling down on its 5G strategy, will continue to operate the Sprint wireline network and fund all operations. T-Mobile has also committed to take steps to "operationally transform the business" that it had planned to do on a standalone basis. The companies have also struck an "arm's length" agreement for wavelength resale.
Cogent touts strategic and financial benefits
Cogent outlined several strategic benefits from the deal, noting it will increase its fiber footprint and boost scale in the DIA, transit, virtual private networks and colocation/data centers markets. The deal also paves the way for Cogent to enter the North American market for wavelength sales, and compete with market leaders Lumen and Zayo. Cogent, which is also looking to enter the market for dark fiber sales, said it also stands to gain international operating licenses in India and Malaysia, where it has no presence today.
Among other benefits, Cogent will also acquire a legacy Sprint customer base of about 1,400 businesses that, it claims, fall outside Cogent's typical customer profile.
On the financial end, Cogent expects its revenue base, post-close, to be $1.1 billion, or 180% of its current $600 million run-rate. Cogent likewise expects its multi-year revenue growth post-close will be 5% to 7% annually, with targeted aggregate revenue of over $1.5 billion by 2028.
Editor's note: This story was corrected to reflect that the $700 million of services tied to the agreement is what T-Mobile will pay to Cogent in the coming years, and not the other way around.
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— Jeff Baumgartner, Senior Editor, Light Reading