Bidders value Sprint’s pre-paid brand Boost Mobile at $3 bn

A group of buyers including Q Link Wireless have valued Boost Mobile, the pre-paid wireless business of Sprint, at up to $3 billion, Reuters reported.
Boost Mobile pre-paid from Sprint
U.S. Federal Communications Commission (FCC) last week asked T-Mobile and Sprint to divest Boost Mobile in order to give approval for their $26 billion deal. FCC believes that the sale of Boost will reduce the combined company’s market share in the pre-paid wireless business.

However, media reports indicated that the U.S. Department of Justice is against approving the merger because it will reduce competition. The process for selling Boost Mobile is expected to begin after the Justice Department’s review.

If Sprint is able to sell Boost Mobile, there will be potential changes in the enterprise value of the deal between T-Mobile and Sprint.

Satellite television provider Dish Network, which is opposing the deal, said in an FCC filing last year that Sprint and T-Mobile customers were likely to see weighted average prices rise a minimum of 4.2 percent for pre-paid services and 4.8 percent for post-paid.

Boost Mobile offers four lines with unlimited data, talk and text for $100 per month. Boost Mobile is well known among low-ARPU customers.

T-Mobile, which is about 63 percent owned by Deutsche Telekom AG of Germany, has about 80 million phone customers. Sprint, which is owned by SoftBank of Japan, has about 55 million phone customers.

Craig Moffett, an analyst with MoffettNathanson, estimated that T-Mobile has a pre-paid market share of 41 percent. Sprint has a pre-paid market share of 17 percent, giving them 58 percent. Sprint has not disclosed the number of Boost customers.

Analysts at Cowen estimated Boost has 7 million to 8 million customers and a transaction could be valued at $4.5 billion if the deal included wireless spectrum, or the airwaves that carry data, and facilities.

Sprint aims to retain its Sprint brand pre-paid business and Virgin Mobile, another pre-paid brand. T-Mobile would keep Metro, its pre-paid business.

Who’s bidding?

Q Link Wireless, a prepaid brand and the third-largest provider of federally assisted wireless plans, will bid for Boost with private equity backing and could pay between $1.8 billion to $3 billion, founder and CEO Issa Asad told Reuters.

There is less information on the quality of Boost’s customers, such as their level of churn, or the rate of customer cancellations, the devices they are using, and what type of phone plan they are on.

Stephen Stokols, chief executive officer of prepaid wireless company FreedomPop, said a private equity group has placed Boost’s future value at about $4 billion. Stokols said that FreedomPop is not a bidder.

Stokols said if the bid by a private equity group succeeds, the group would combine their acquisition with FreedomPop and he will lead a combined company with the Boost pre-paid assets.

Peter Adderton, founder of Boost Mobile who sold the business to Nextel in 2004, which was then acquired by Sprint, said he is interested in buying back Boost.

Regulators must also ensure the new T-Mobile does not employ anticompetitive practices to harm Boost, and the contract between the companies should be non-exclusive, which would allow Boost to buy network access from other carriers, Adderton said.