T-Mobile to sell $2B in debt to fund spectrum purchases

T-Mobile US (NYSE:TMUS) plans to sell $2 billion in debt after raising $1.8 billion in a stock sale as part of a plan to build up its war chest to buy spectrum.

The carrier revealed the debt sale in a filing with the Securities and Exchange Commission, and said it is "currently considering an acquisition of spectrum from a private party. If we reach agreement to acquire such spectrum, we anticipate that a portion of the net proceeds of this offering will be used to finance such acquisition." T-Mobile used the same language in describing its stock sale earlier this month.

Earlier this month, T-Mobile said it would not participate in the January auction of the 1900 MHz PCS H Block. T-Mobile is likely eyeing other auctions, including the incentive auctions of 600 MHz broadcast spectrum, and the auction of the AWS-3 bands, which are compatible with its existing AWS holdings.

New Street Research analyst Jonathan Chaplin wrote in a research note Monday that previously he had expected T-Mobile to spend around $5 billion on spectrum over the next two years, but that given the recent capital raises and the coming auction schedule, he now believes T-Mobile could spend around $7 billion in total on spectrum.

The most likely target, according to Chaplin, is Verizon Wireless' (NYSE:VZ) 700 MHz A Block spectrum, which it has largely not yet sold after putting it on the block in 2012. Verizon paid $2.4 billion for the licenses.

"In addition to the A Block, there are two spectrum auctions coming in 2014: 1) The H-Block, which TMUS has said they won't bid on, and; 2) AWS-3, which we believe they may bid on," Chaplin wrote. "We expect 50 MHz of AWS-3 to be auctioned in 4Q14. This will be a major auction that all carriers will likely participate in. If TMUS succeeds in acquiring all of the A Block, we now believe they might need to come back to the market in 2014. A 10MHz license could fetch at least $3BN."

All of this is designed to bolster T-Mobile's LTE network and improve coverage. T-Mobile said it has already combined MetroPCS' LTE spectrum (mostly likely AWS airwaves) in Las Vegas with T-Mobile's network and spectrum, doubling the LTE spectrum deployment and dramatically increasing data speeds for both T-Mobile and MetroPCS customers with capable devices. The company expects to repurpose additional MetroPCS LTE spectrum in other cities, including New York City, before the end of the year, thereby expanding the channel size of T-Mobile's LTE network to at least 10x10 MHz in 40 out of the top 50 markets by year-end. T-Mobile expects to start deploying 20x20 MHz LTE widely next year.

T-Mobile now has LTE service in 94 of the top 100 markets and plans to eventually cover 90 percent of the top 25 markets with 20x20 MHz LTE. T-Mobile CTO Neville Ray has said that rollout will include "substantial" deployments in 2014.

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

Related Articles:
Sprint, T-Mobile, Dish and others urge FCC's Wheeler to let them get 600 MHz spectrum
Analysts: Sprint, T-Mobile ditched H Block to focus on other spectrum, avoid Dish complications
T-Mobile rules out H Block auction, willing to buy spectrum from 'a private party'
T-Mobile to raise $1.8B in stock sale, could use funds to buy spectrum
T-Mobile adds 1M subs in Q3 as 'uncarrier' strategy keeps rolling

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