September 7, 2022
The companies announced the deal, which adds up to a whopping $1 cost for Cogent, on Wednesday. Moreover, T-Mobile will shoulder a $1 billion charge on the transaction. The deal should close in the second half of 2023.
The agreement marks a conclusion of sorts to T-Mobile’s 2020 acquisition of Sprint. T-Mobile spent $26 billion to buy Sprint, citing Sprint’s deep treasure trove of 2.5 GHz midband spectrum that is playing a key role in T-Mobile’s 5G network. However, the legacy Sprint wireline network did not seem to fit into T-Mobile’s long-term plans. The T-Mobile wireline unit drove $739 million in revenue last year, according to Reuters.
T-Mobile’s Mike Sievert
CEO Mike Sievert in T-Mobile’s latest earnings call noted that T-Mobile was no longer using the wireline asset to support the wireless business. He added that his team would “never rule out” M&A.
Keep up with the latest channel-impacting mergers and acquisitions in our M&A roundup.
“We are obviously conducting a review as to the best way to manage that asset. It’s a terrific product with a deep, deep legacy in our company. And it’s important that we make the right decisions there for the long haul, taking into account how the market has changed over time,” Sievert told analysts.
He described T-Mobile as the “leading pure-play mobile Internet company.”
“We are executing very solidly for our shareholders with a clear eye toward returning value to those shareholders as a result of our efforts,” Sievert said.
T-Mobile is selling IP assets and remaining wireline customers. Those customers are using legacy VPN, SD-WAN and IP voice services, according to Courtney Munroe, IDC research vice president of worldwide telecommunications.
Mejeticks’ Robert DeVita
According to the companies, the legacy Sprint U.S. long-haul network will eventually replace the leased network Cogent is running. T-Mobile will pay $700 million to access IP transit services for four-and-a-half years after the deal goes final. T-Mobile must make $350 million in payments in the first year. Cogent said it will help customers move from legacy MPLS VPN to Ethernet VPLS, SD-WAN and dedicated internet access as a result of the acquisition.
Thus far, the announcement has been met with a positive reaction from partners and analysts.
IDC’s Courtney Munroe
“Shedding the wireline business is an excellent move for T-Mobile,” Mejeticks CEO Robert Devita told Channel Futures. “When you look at AT&T and Verizon, their wireline business is definitely shrinking and holding down their stock prices. A pure-play wireless strategy is a strong move in the right direction for them.”
Munroe said the deal makes sense.
“T-Mobile never integrated the Sprint wireline network, which is largely a legacy infrastructure that has not been significantly upgraded,” Munroe told Channel Futures. “This is a good outcome for both companies, and the best alternative to shutting down the network, which as been rumored for months.”
Cogent on its website lists six companies as its tech services distributor partners: AB&T Telecom, AppSmart, ARG, BCM One, Sandler Partners and Telarus.
On the other hand, T-Mobile executives have said that channel partners have contributed to the growth of the company’s wireless business.
Devita said he anticipates business as usual.
“I don’t see a big effect on the channel with this deal since the T-Mobile wireline business was really an afterthought in the agent community,” Devita said. “I don’t know of many agents who were selling legacy T-Mobile wireline services.”
Devita also called the deal a win for Cogent.
“I would assume as part of this deal they captured a significant amount of T-Mobile business on their IP backbone,” he said.
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