Analyst: T-Mobile will need $9B in capital, spectrum to get to LTE

T-Mobile USA faces a daunting financial and technical challenge to launch LTE services, and the cost could reach as high as $9 billion, according to the estimates of one financial analyst.

According to RBC Capital Markets analyst Jonathan Atkin, T-Mobile parent Deutsche Telekom would likely have to pay as much as $9 billion to acquire spectrum and build out a network to achieve parity with larger rivals AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ). Moreover, he said, the process could take up to three years, according to Bloomberg.

Deutsche Telekom CEO Rene Obermann told analysts this week that the company has been spending around $3 billion annually on capital expenditures for T-Mobile USA, including network upgrades to HSPA+ technology (T-Mobile's HSPA+42 network, which it says offers customers LTE-like speeds, covers 180 million POPs).

As a result of the AT&T/T-Mobile deal falling apart, Deutsche Telekom will get $3 billion in cash, AWS spectrum from AT&T covering 128 markets and a seven-year UMTS roaming agreement with AT&T for a total value of $6 billion. The problem for Deutsche Telekom is that it has other pressing needs in its core European markets as well.

"If you're looking for a plan B now you'll probably have to invest more in this business," Bruno Lippens, a fund manager at Pictet Asset Management in Geneva, which holds about 14 million Deutsche Telekom shares, told Bloomberg. "And if you don't have the cash available because you are allocating it to fiber in Germany, and dividends--and you probably need to do something in Greece as well-- then it just adds to this whole list of strategic priorities that the management has."

All of these factors increase the likelihood that T-Mobile will have to find another partner in the medium term, analysts said. Several potential options that have been floated include partnerships with Dish Network and Clearwire (NASDAQ:CLWR) or some kind of network-sharing deal with AT&T.

Interestingly, prior to announcing its planned merger with AT&T in March, Deutsche Telekom reportedly held talks with entities including Sprint Nextel (NYSE:S).

"The other alternatives at the time didn't look nearly as attractive to all stakeholders, including the customers, including the U.S. agenda, the national broadband plan," Obermann said during an interview with Bloomberg, when asked whether a deal with Sprint would have been better. "We have to take the proceeds now and move on and make the best out of the situation."

For more:
- see this Bloomberg article

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