(Reuters) - Sprint Nextel Corp agreed to buy United States Cellular Corp businesses in Chicago, St. Louis, central Illinois and three other markets to expand coverage as it upgrades its network.
The No. 3 mobile phone service provider said on Wednesday that it will buy personal communications service (PCS) spectrum, commonly used in mobile voice and data services, and about 585,000 customers, or about 10 percent of U.S. Cellular's total customer base.
Sprint said in a statement that it was paying $480 million in cash and assuming certain liabilities. It will use the additional spectrum to supplement coverage in the U.S. Midwest and roll out high-speed 4G LTE wireless networks, the company said.
It said the transaction, subject to approval by the Department of Justice and the Federal Communications Commission (FCC), is expected to close in mid-2013.
Sprint, which agreed last month to sell a controlling stake to Japan's Softbank Corp for $20 billion, desperately needs a network upgrade as the increased use of devices such as smartphones and tablets require more high-speed bandwidth.
In October, Sprint said it would carry Apple Inc's iPad mini and fourth-generation iPad on its 4G LTE network.
One mobile industry analyst, Jennifer Fritzsche of Wells Fargo, said the acquisition announced on Wednesday was a logical move for Sprint "and an intriguing move by U.S. Cellular as it seems to indicate an important change in strategic direction."
She said U.S. Cellular "appears to be placing its focus on the rural markets where it is apparently much more profitable due to the higher penetration it has as well as the roaming revenue it generates from other carriers."
Sprint, which lost more customers than expected last quarter, has struggled for years to turn around its business as it competes against larger rivals Verizon Wireless and AT&T Inc.
The markets included in the deal generated service revenue of about $340 million and incurred an operating loss, U.S. Cellular said.
U.S. Cellular also offers 3G coverage mainly in the Pacific Northwest, Midwest, parts of the East and New England and 4G LTE coverage in Iowa, Wisconsin, Maine, North Carolina, Texas and Oklahoma.
The company, which will retain direct and indirect ownership interests in about 560 towers and other spectrum, also said it will move its Bolingbrook Customer Care Center operations in Illinois to an existing vendor partner, effective January 1, 2013.
(Reporting by Sayantani Ghosh in Bangalore and Nicola Leske in New York; Editing by Joyjeet Das and Grant McCool)
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