T-Mobile US (NYSE:TMUS) is selling stock in an offering that is likely going to raise $1 billion. The carrier indicated it will use the proceeds for capital expenditures and spectrum purchases beyond what it may acquire in the ongoing AWS-3 auction.
T-Mobile said it is commencing a public offering of 17,391,305 shares of its Mandatory Convertible Preferred Stock, Series A, with a liquidation preference of $50 per share. T-Mobile intends to grant the underwriters the option to purchase up to an additional 2,608,695 shares of its Mandatory Convertible Preferred Stock. T-Mobile's stock was trading down more than 5 percent Tuesday morning on the news.
The action comes a little more than three months after T-Mobile raised new debt, likely for the AWS-3 auction. Analysts think T-Mobile could spend around $2 billion in the AWS-3 auction, likely for 5x5 MHz blocks of spectrum in areas around the country where it wants to create 20x20 MHz channels for LTE service.
However, T-Mobile is also planning a significant expansion in LTE coverage in 2015, especially using its 700 MHz A-Block spectrum and 1900 MHz spectrum. T-Mobile has said it is on track to cover 260 million POPs with LTE by the end of 2014 and 280 million by mid-2015. T-Mobile CTO Neville Ray said the company expects to hit the 300 million covered POP mark by the end of 2015.
T-Mobile plans to deploy carrier aggregation technology in concert with its vendor partner Nokia (NYSE:NOK) Networks and is also expanding its deployment of 4x2 MIMO antenna technology to enhance LTE performance at the cell edge.
Acquiring and deploying 700 MHz spectrum continues to be a major part of T-Mobile's network strategy. T-Mobile secured A Block spectrum covering 150 million POPs from Verizon Wireless (NYSE: VZ), and in recent months T-Mobile executives have indicated the company has secured A Block spectrum covering roughly another 18 million POPs from various smaller holders of the airwaves, including CenturyLink subsidiary Actel, I-700 A Block LLC and Frontier Communications. In November T-Mobile struck spectrum-acquisition deals with BEK Communications Cooperative, Dakota Central Telecommunications Cooperative, Big Wave Ventures and Vulcan Wireless.
T-Mobile's first 700 MHz sites are already on air, and several Band Class 12-capable handsets are available in the market, including the Samsung Galaxy Note 4. T-Mobile said it will continue to aggressively deploy 700 MHz sites and that more Band 12-capable handsets will become available in the rest of 2014 and first half of 2015. More than half of the markets covered by the company's A-Block spectrum are free and clear and ready to be deployed, though the remaining markets are encumbered by Channel 51 broadcasts, generally limiting T-Mobile's ability to use the spectrum until after the incumbent broadcasters are relocated after the 600 MHz incentive auction scheduled for early 2016. However, the company has already entered into agreements to relocate broadcasters to new frequencies in six markets covering more than 17 million POPs, making those markets available for launch in 2015.
In a research note, Macquarie Capital analyst Kevin Smithen said that the stock issuance will unnecessarily dilute T-Mobile's stock at the wrong price ahead of an expected increase in EBITDA in 2015. "We expect T-Mo's cost of capital to drop in coming quarters," he wrote. "However, more 700 MHz spectrum appears to be available today and T-Mo's Board has chosen current flexibility over future balance sheet leverage."
Smithen also noted that the stock sale "may put an end to any near term merger speculation for T-Mo following the AWS-3 auction." He wrote that "securing nationwide low-band spectrum either in the private markets or in mid-16 in the incentive auction is important, we don't dispute that. However, given attractive bond yields, we would have preferred to see the company ramp up EBITDA over the next few quarters and issue more debt."
- see this release
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