T-Mobile US Buying Verizon Wireless’s 700 MHz A-Block Licenses
T-Mobile US is getting the lower band spectrum it has long coveted, buying Verizon Wireless’s 700 MHz A-block licenses for $3.3 billion, in a deal announced Monday. The transaction must clear the FCC and get antitrust approval from an agency that’s expected to be the Department of Justice. Most FCC watchers we asked don’t expect that to be a major hurdle. Combined with the low-band spectrum T-Mobile already has in the Boston area, the carrier said it would have low-band spectrum in 21 of the 30 top U.S. markets -- including nine of the top 10. Major markets in the new spectrum include New York, Los Angeles and Washington, D.C. The spectrum covers an area with 158 million potential subscribers, T-Mobile said.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
T-Mobile was a dominant player in the AWS-1 auction in 2006, but sat out the 700 MHz auction in 2008, where Verizon and AT&T emerged as the big winners. In recent years, T-Mobile officials have made no secret of their desire for sub-1 GHz spectrum, with its superior propagation characteristics and in-building coverage. An expanded low-band portfolio will be important for T-Mobile because it will improve its wireless service in urban, suburban and rural areas, said Chief Technology Officer Neville Ray during a conference call Monday with analysts. Low-band spectrum provides an in-building signal in urban areas that’s twice as strong as mid-band can provide, and will make it more efficient for T-Mobile to provide coverage in suburban and rural areas, Ray said.
The spectrum deal is likely to have little problem winning approval at the FCC and DOJ, analysts said. The Obama administration “believes in the four-carrier structure” and has approved other deals in the past that would make Sprint and T-Mobile more competitive against Verizon Wireless and AT&T, said Medley Global Advisors’s Jeff Silva. The FCC and DOJ “have both made clear their view that wireless carriers need both low- and high-band spectrum to be fully competitive,” said Guggenheim Partners’s Paul Gallant. “Also, given all carriers’ desire to plan for the September/October AWS-3 auction, we would not be surprised to see the FCC/DOJ clear this deal more quickly than the normal six months."
T-Mobile believes it will be able to use the 700 MHz A-block spectrum in many areas immediately after the deal’s expected mid-year closing because many of the covered markets do not have Channel 51 interference concerns. “This isn’t an opportunity that’s going to take two or three years to have an impact on T-Mobile’s growth,” Ray said. The 700 MHz A block, which is located the closest to broadcast TV of any of the blocks sold in the 700 MHz auction, does present interference challenges T-Mobile will have to work through, industry analysts said. Last year, AT&T agreed to device interoperability throughout the 700 MHz band, including the A block.
T-Mobile is buying the A-block licenses using a combination of $2.37 billion in cash and the transfer of $950 million worth of AWS and PCS licenses. The deal has the potential to make it more difficult for Sprint to make a rumored bid for T-Mobile, Silva said. “This is a big boost for T-Mobile at Sprint’s expense.” But Verizon Wireless could come out of the deal as “the biggest winner of all” because it would diminish the prospects of a stronger No. 3 Sprint and allows T-Mobile to “nip at the heels” of AT&T, Silva said.
The buy “is a big investment to obtain the low-band spectrum it desires to improve network coverage,” said BTIG analyst Walter Piecyk. “That is 10 percent higher than the more than $3.0 billion we estimated T-Mobile would have to pay for this spectrum. While some have complained about the interference issues of this spectrum, T-Mobile promises a ‘rapid deployment.'” Credit Suisse calculated that the purchase price translates to $1.85 MHz/POP. Since T-Mobile recently raised $3.8 billion in part to fund low-band spectrum acquisitions, it should have $1.44 billion left for other smaller spectrum buys, Credit Suisse said.
The 700 MHz A-block deal could signal that T-Mobile might “put more of an emphasis on the AWS-3 auction once all the particulars in that get settled,” Silva said. “Any time there’s a spectrum acquisition in advance of these upcoming auctions, it can’t help but alter a company’s strategy and therefore the whole competitive bidding dynamic of that auction."
News of T-Mobile’s spectrum deal comes in advance of the No. 4 U.S. carrier’s planned announcement Wednesday of a fourth service offering as part of its “Uncarrier” strategy to lure customers away from other major national carriers. “Where we do compete and where we do play, we're smacking the crap out of them,” T-Mobile CEO John Legere said during the conference call. ,