T-Mobile seen as winner in Sprint's decision to bow out of 600 MHz incentive auction

Analysts believe Sprint's (NYSE: S) decision not to participate in next year's 600 MHz incentive auction represents a major positive development for T-Mobile US (NYSE:TMUS), which now will face fewer competitors in bidding for the 30 MHz of spectrum in the auction that is being set aside by the FCC for smaller wireless operators.

"For TMUS we see this as a very positive development," said the analysts at Wells Fargo in a research note to investors today in response to Sprint's announcement that it would not participate in the auction. "As long as there is enough spectrum from the broadcasters, it [T-Mobile] should face a lot less competition in the fight for the 30MHz (megahertz) of reserve spectrum."

"TMUS recently lost its battle on trying to get the FCC to increase the spectrum reserve from 30MHz to 40MHz," said Evercore ISI analysts in a research note. "However, with S now out of the bidding, TMUS could benefit from having fewer large competitors."

The FCC has said it will set aside 30 MHz in most major markets for smaller wireless carriers to bid on during the auction -- T-Mobile had urged the agency to increase that reserve to 40 MHz, but the agency declined. The move by the agency to create a reserve of spectrum for smaller carriers essentially prevents market heavyweights AT&T (NYSE: T) and Verizon Wireless (NYSE: VZ) from bidding on that reserved spectrum.

Now, with Sprint's decision to avoid the auction, T-Mobile will be left as the only major nationwide wireless carrier that can bid on the FCC's 30 MHz reserve.

To be clear, smaller wireless carriers like U.S. Cellular and C Spire Wireless will also likely be able to bid on the reserved spectrum. However, most of those smaller carriers don't have the financial wherewithal to outbid T-Mobile. Further, there are FCC rules for the auction that essentially prevent one carrier like T-Mobile from acquiring all of the 30 MHz contained in the reserve. And the FCC is hoping that additional bidders beyond the established wireless carriers participate in the auction, thereby potentially raising bids on the spectrum.

Indeed, FCC Commissioner Ajit Pai used the news to highlight his opposition to the 30 MHz spectrum reserve: "Sprint's decision not to participate in the incentive auction highlights the folly of the FCC's attempt to pick winners and losers before the auction begins," he said. "It also intensifies doubts about how competitive the bidding will be for set-aside spectrum and whether American taxpayers will receive fair compensation for that scarce public resource. Sprint's announcement only strengthens my belief that the FCC should not have granted a spectrum giveaway in this auction or placed artificial limits on carriers' participation." 

Late Friday, Sprint announced that "after thorough analysis" it would not bid in next year's 600 MHz auction of TV broadcaster's spectrum, an event scheduled to start March 29. "Sprint has concluded that its rich spectrum holdings are sufficient to provide its current and future customers great network coverage and be able to provide the consistent reliability, capacity, and speed that its customers demand," the company said in a statement.

"Sprint's focus and overarching imperative must be on improving its network and market position in the immediate term so we can remain a powerful force in fostering competition, consumer benefits and innovation in the wireless broadband world," stated Sprint CEO Marcelo Claure. "Sprint has the spectrum it needs to deploy its network architecture of the future."

Indeed, Evercore ISI estimates Sprint currently owns around 171 MHz of spectrum, including 14 MHz of 800 MHz spectrum, 37 MHz of PCS spectrum, and 120 MHz of 2.5 GHz spectrum. In terms of overall spectrum holdings, Sprint owns more spectrum than any other U.S. wireless carrier, largely thanks to the 2.5 GHz spectrum it acquired via its purchase of Clearwire in 2013. (Evercore estimates AT&T owns roughly 147 MHz of spectrum and Verizon Wireless owns roughly 116 MHz.) Sprint is in the midst of another network upgrade project, one the carrier's CEO has predicted will give Sprint the No. 1 or No. 2 network in every major U.S. market within the next 24 months.

Specifically, Sprint's Claure has said that "nearly all" of Sprint's existing macro cell sites will be upgraded to support 800 MHz, 1900 MHz and 2.5 GHz for LTE. Sprint plans to deploy thousands of new macro sites and initially tens of thousands of small cells. Claure said the deployment will be the "largest deployment of sites that have been done in the U.S. in the shortest period of time."

Claure also said Sprint will use a "different type of backhaul." Some analysts have speculated that Sprint will likely use in-band wireless backhaul solutions using the lower 2.5 GHz spectrum band that would not require line of sight.

Sprint is hoping its network overhaul coupled with its 2.5 GHz spectrum holdings will allow it to keep pace with its larger competitors.

Of course, outspoken T-Mobile CEO John Legere didn't miss an opportunity to poke at his rival Sprint. Following Sprint's announcement that it wouldn't participate in the auction, Legere Tweeted: "he mean to say ..we have no money, can't borrow any, and Masa won't give us any more...oops I mean we don't want it any way :)"

For more:
- see this Sprint release

Related articles:
Sprint, T-Mobile could combine network assets into a new company, analysts argue
Sprint's Claure: Network improvement, awards in Denver are a harbinger of things to come nationwide
Sprint's Saw: Our network densification won't be 'a traditional slow and expensive build'
T-Mobile's Legere: Give us more spectrum, and we'll amp up competition even further
FCC lays out 600 MHz auction roadmap, will kick off process in 'early fall'

Article updated Sept. 28 to add additional context on auction rules.