UScellular has painted an alarming picture of its future, saying it needs T-Mobile to buy it in order to avoid what would effectively be a death spiral.

T-Mobile announced in May that it had reached a deal to purchase UScellular for approximately $4.4 billion. The deal was for the bulk of UScellular’s wireless operations, including customers and “certain specified spectrum assets.”

Given the size of the deal, and the ongoing consolidation of the US wireless market, regulatory approval could be a major sticking point. T-Mobile acquired Sprint, effectively reducing the number of nationwide carriers from four to three. While a regulators were keen to see Dish Network become a new fourth carrier, the company has failed to live up to the promise, leaving Verizon, T-Mobile, and AT&T as the nation’s largest carriers. While UScellular is considered a regional operation, it still has a large enough presence and user base for regulatory scrutiny to possibly be a factor.

In an effort to head off any issues, UScellular has written a letter to the FCC detailing its current condition and its prospects if the merger falls through.

UScellular representatives reviewed the company’s recent operational and financial challenges and their path forward absent this transaction, as detailed in the Public Interest Statement and the Declarations of Laurent Therivel and Michael Irizarry, Executive Vice President and Chief Technology Officer of UScellular. They explained that:

• UScellular has consistently lost subscribers in recent years despite deploying a variety of strategies to attempt to arrest that decline. 6 Subscriber losses accelerated in 2022, a year that UScellular invested heavily on promotions.7 UScellular anticipates that it will continue to lose subscribers going forward.8 The acceleration of subscriber losses is attributable to multiple factors:

• Competitive intensity has ramped up in UScellular’s footprint, with both traditional wireless providers and cable wireless providers increasing their competitive presence.9 That intensity has, in turn, led to aggressive pricing and promotions—and further challenged UScellular’s subscriber numbers and financials.
• UScellular took on significant debt to purchase the mid-band spectrum needed to compete in 5G.11 Declining subscriber revenue means that the cash to pay back that debt needs to come from reduced spending in UScellular’s operations. As a result, UScellular has reduced spending on its network12 and foregone certain other investments.
• While UScellular has been pulling back on its network investments, its competitors have been spending more to expand their networks and enhance their network quality and customer experience in UScellular’s footprint. UScellular has fallen behind its competitors and the gap is continuing to grow.
• In other words, fewer subscribers mean less revenue to spend on network improvements and the customer experience; that spend is further decreased by the need to pay back debt; and the resulting network experience in turn leads to even fewer subscribers.
• UScellular representatives noted additional challenges created by the structural disadvantages of its dispersed footprint, including its lack of scale, and described the company’s extensive review of strategic alternatives. UScellular determined that it could not reorganize itself out of these disadvantages and that its efforts to remain competitive would not materially improve its position.

The letter then goes on to tout the benefits to both companies’ subscribers if a deal goes through, providing better network coverage and data speeds. The letter also says that existing UScellular customers will have the option of staying on their existing plans or moving to a low-cost T-Mobile one.

The letter could go a long way toward alleviating regulatory concerns, as it paints a picture of a company on the verge of a death spiral.