T-Mobile rules out H Block auction, willing to buy spectrum from 'a private party'

T-Mobile US (NYSE:TMUS) indicated it will not participate in the Jan. 22 auction of the 1900 MHz PCS H Block, but said it is still shopping for more spectrum from an unnamed private company.

On Monday, T-Mobile said it plans to sell new shares in a move that could raise as much as $1.8 billion. The company could use the cash "for general corporate purposes, including capital investments, enhancing its financial flexibility and opportunistically acquiring additional spectrum in private party transactions and/or government auction."

According to a Securities and Exchange Commission filing, T-Mobile said although it does "not intend to participate in the FCC's upcoming auction of 1900 MHz PCS H block spectrum, we are currently considering an acquisition of spectrum from a private party. If we reach agreement to acquire such spectrum, we anticipate that a portion of the net proceeds of this offering will be used to finance such acquisition."

Which company that private party might be has stirred speculation among the financial community. "We will be at a competitive disadvantage and possibly experience erosion in the quality of service in certain areas if we fail to gain access to necessary spectrum before reaching capacity, especially below 1 GHz low-band spectrum," T-Mobile wrote in the filing.

Given T-Mobile's preference for low-band spectrum, that may rule out some options, according to analysts. One possibility could be Aloha Partners, which controls AWS spectrum complementary to T-Mobile's.

"Aloha is the 8th largest owner of spectrum in the United States with 12 of the top 40 markets including big ones like San Francisco, Denver and Sacramento," noted BTIG analyst Walter Piecyk. "This spectrum is also not encumbered by existing users." An Aloha spokesman did not immediately respond to a request for comment.

Analysts think LightSquared's spectrum is likely off the table, given that it is not low-band spectrum and Dish Network (NASDAQ: DISH) is the lead bidder in an auction in bankruptcy proceedings to take control of the airwaves.  Likewise, Dish's 700 MHz D and E Block could be a possibility, but that is unlikely, according to analysts.

However, a distinct possibility could be Verizon Wireless' (NYSE:VZ) 700 MHz A Block spectrum, which it has largely not yet sold after putting it on the block in 2012. "If a transaction makes sense, then we'll execute the transaction," Verizon Communications CFO Fran Shammo said at an investor conference Tuesday. "If it doesn't, then we'll deploy it."

"The Verizon spectrum would not give it nationwide coverage. On the other hand, low-band spectrum (<1 GHz) enables a way to roll out coverage more cheaply," Piecyk wrote. "Incumbents AT&T and Verizon already benefit from their deployment of 700 MHz and 800 MHz spectrum and Sprint hopes to benefit after clearing iDEN off its 800 MHz band."

New Street Research analyst Jonathan Chaplin wrote in a research note that Verizon's A Block remains the most likely target for T-Mobile. "Verizon started with around 150MM POPs covering two-thirds of the top 100 markets for an outlay of $2.4BN," he wrote.  "They have since sold 4 of their 23 licenses (we are not sure which ones).  It is plausible that they would be willing to sell the remainder for ~$2BN."

For more:
- see this T-Mobile filing
- see this Reuters article
- see this WSJ article (sub. req.)
- see this BTIG blog post (reg. req.)

Related Articles:
T-Mobile to raise $1.8B in stock sale, could use funds to buy spectrum
T-Mobile adds 1M subs in Q3 as 'uncarrier' strategy keeps rolling
T-Mobile, Verizon join forces on 600 MHz auction band plan
AT&T blasts T-Mobile proposal for 600 MHz auction
T-Mobile proposes sliding spectrum screen rule for 600 MHz auction
FierceWireless' spectrum auction guide: What you need to know about the upcoming auctions

Read more on