Report: Sprint, T-Mobile to form JV to bid in 600 MHz incentive auction

Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) plan to create a joint venture to bid for spectrum in next year's planned incentive auction of 600 MHz broadcast TV spectrum, according to a Bloomberg report. Meanwhile, the Wall Street Journal separately reported that the JV will seek to raise $10 billion for bidding.

The two carriers, which are reportedly moving toward a deal to a merge, plan to bid on the airwaves through a JV that would be independent of the merger transaction, according to the Bloomberg report, which cited unnamed sources. The Journal report said the $10 billion figure is part of a roughly $45 billion financing package being put together by SoftBank to finance Sprint's acquisition of T-Mobile. That amount would eclipse the $9 billion AT&T Mobility (NYSE: T) has set aside for the auction, according to the Journal.

Sprint and T-Mobile declined to comment, according to Bloomberg.

Interestingly, the companies are still working it the structure of the JV, the report said, adding that it would be led by a separate management team. According to the Journal, T-Mobile will oversee the venture, a concession from Sprint Chairman Masayoshi Son made during the merger negotiations. According to the Bloomberg report, the companies have had informal talks on the JV with FCC representatives, and the companies don't expect opposition to the plan.

The JV would potentially give the carriers' greater flexibility in planning for future spectrum needs. However, it's unclear if the companies' competitors would object to such a joint venture.

The FCC in May voted 3-2 along party lines for rules in the 600 MHz incentive auction to prevent AT&T and Verizon Wireless (NYSE: VZ) from acquiring all the available spectrum up for grabs, thereby saving that spectrum for smaller carriers like Sprint, T-Mobile and other regional players. According to the rules, the FCC will withhold, or reserve, up to 30 MHz of spectrum for carriers that currently hold less than one-third of the available spectrum below 1 GHz in a market. Thus, any nationwide carrier with 45 MHz or more of low-band spectrum wouldn't be able to bid on the reserved spectrum--Verizon and AT&T are the only carriers that own more than 45 MHz of low-band spectrum. The goal of the rules is to ensure that smaller carriers that don't have much low-band spectrum are able to acquire 600 MHz spectrum in the auction.

Neither Sprint nor T-Mobile owns more than around 20 MHz of low-band spectrum in any market in the country, and therefore will be able to bid on reserved spectrum. AT&T and Verizon, too, will be able to bid on reserved 600 MHz spectrum in markets where they do not own more than 45 MHz of spectrum below 1 GHz.

However, the FCC has said it has the right to potentially revise its 600 MHz auction rules if a deal is proposed among the four Tier 1 carriers.

The Bloomberg report added that while Sprint and T-Mobile have agreed to the broad terms of a merger, the transaction isn't likely to be announced until August, a month later than initially expected. Sprint would offer about $40 per share in stock and cash for T-Mobile in a deal worth $32 billion. To finance the deal, Sprint is asking banks for about $20 billion and parent SoftBank is seeking a similar amount.

According to the Bloomberg report, Masayoshi Son wants banks to commit financing for a longer-than-usual amount of time because of the likelihood that the FCC and Department of Justice will conduct a lengthy review of any proposed transaction. The report said the companies expect a regulatory review to last at least a year, and the deal could potentially have a clause that it will be terminated if it is not approved within 18 months after it is announced, though that deadline could be extended.

For more:
- see this Bloomberg article
- see this WSJ article (sub. req.)

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Article updated July 15 with additional information.