T-Mobile seeks to raise $1B to acquire more 700 MHz spectrum

T-Mobile (NYSE: T) announced plans to issue $1 billion in bonds to fund the acquisition of more 700 MHz A Block spectrum and other airwaves.

The nation's third-largest carrier has spent more than $1 billion in recent months to buy 700 MHz licenses from Cellular South, Cavalier, C700 and others to cover major areas in the Southwest and Southeast.

"In January 2016, T-Mobile acquired spectrum licenses covering nearly 20 million people in seven major metropolitan markets for approximately $0.6 billion in cash," T-Mobile said in an SEC filing earlier this year. "Additionally, in January and February 2016, T-Mobile entered into agreements with multiple third parties for the exchange of certain spectrum licenses and the acquisition of 700 MHz A Block spectrum licenses covering approximately 48 million people, for approximately $0.7 billion in cash."

T-Mobile has been buying 700 MHz spectrum to flesh out its coverage in rural and urban areas in a bid to make its network comparible to the networks of Verizon and AT&T. 700 MHz is generally viewed as good for covering large geographical areas due to its propagation characteristics. T-Mobile has often referred to the spectrum as its "Extended Range" LTE service.

T-Mobile already appears to be the primary owner of 700 MHz licenses in the U.S., as indicated by this map from Allnet Insights & Analytics showing the current status of A Block ownership around the country.

And T-Mobile plans to leverage its expanding network by growing its retail presence in the suburban and rural areas where it has traditionally lacked presence. "We now cover 305 million people in the U.S. with our 4G LTE footprint, and we think right now we have the opportunity to expand our distribution into another 30 to 40 million POPs here in the U.S. where we have zero penetration. The ecosystem's there," T-Mobile CFO Braxton Carter said at an investor conference earlier this month, noting that every new handset the carrier sells supports 700 MHz.

The operator is also expected to be an active participant in the FCC's upcoming incentive auction of 600 MHz spectrum, spending as much as $8 billion on new airwaves.

T-Mobile's new bonds will be issued in the form of senior notes, which are relatively secure and must be repaid in the event of bankruptcy. They will be issued in a registered public offering and come due in 2024.

Moody's Investors Service offered a positive outlook on T-Mobile's new bonds and its overall corporate strategy. The firm said its rating "reflects our expectation for sustained market share gains as innovative service offerings, improving network performance and good customer service continue attracting new customers. We expect this solid execution will lead to rapidly growing positive free cash flow generation this year. In addition, a strong liquidity profile and valuable spectrum assets also provide credit support. These strengths are offset by the company's distant third position in the highly competitive U.S. wireless industry, the capital intensity associated with building out its 4G LTE network to manage rapidly rising bandwidth demand and a moderately leveraged balance sheet."

For more:
- see this T-Mobile press release

Related articles:
T-Mobile: We'll cover 30M to 40M new POPs in 12-18 months
T-Mobile's 700 MHz buildout in 2016 revealed: Over $1B spent in Utah, Southeast and elsewhere
T-Mobile buys Verizon's 700 MHz A Block spectrum for $2.4B
T-Mobile seen as favorite to win spectrum in 600 MHz auction, but smaller carriers likely to jump in as well

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