There's an article over at Investors Business Daily suggesting that Sprint may sell its wireline network business at last, and that Level 3 would be the most likely buyer. It's not a new idea of course, but in this iteration is being suggested by Oppenheimer as a likely move. Is it finally time?
The idea would be a sale/leaseback transaction that would let Sprint focus on wireless and give Level 3 another bundle of revenue to put over its higher margin infrastructure. Sprint's wireline business has been declining for a long time, as the company has managed it for cash and invested only what it has had to. In Q2 the division had $746M in revenue, down some 18% from Q2 of 2013, while adjusted EBITDA fell to just $35M. Of that $746M in revenue, $153M was came from providing network services to Sprint's wireless division.
But IBD quotes Oppenheimer's suggestion of a $4B price tag, which seems quite high unless we're talking about a different set of assets/costs than is reported as a segment in Sprint's filings. Level 3 may have paid some $5.7B for tw telecom, but that was for a growing, high margin enterprise business with complementary, modern, deep metro assets. Sprint's wireline business on the other hand is older, voice-heavy, metro-light, declining, and low margin. Given the scope of the integration process already on Level 3's plate, I think a deal for Sprint's wireline business would have to be at a pretty big discount to get their attention.
However, I'm not sure Level 3 is the best buyer here anymore, regardless. CenturyLink and the former Qwest network has always seemed like a decent fit, and now we have Windstream and its planned network REIT to add to the mix. If Sprint is actually ready to make such a move, (something they should have done long ago IMHO), then either of those seem as likely to me.
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