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 Shares in T-Mobile, majority owned by Deutsche Telekom <DTEGn.DE>,
rose 2.5 percent on Monday after the company said it will pay
Verizon Wireless $2.365 billion cash and give it $950 million worth
of spectrum.
Demand for wireless airwaves has risen sharply as U.S. operators
scramble to boost their networks to support increasing consumer Web
surfing and video use on cellphones. While the government is
planning airwave auctions, spectrum demand may also drive further
consolidation involving airwave owners such as Satellite TV provider
Dish Network <DISH.O>.
T-Mobile, the No. 4 U.S. mobile provider, has been using discounts
to compete with bigger rivals, but it badly needs more airwaves
after falling behind bigger rivals AT&T Inc <T.N> and Verizon
Wireless in developing high-speed data services.
T-Mobile, which may itself be an acquisition target of Dish or
Sprint Corp <S.N>, also said on Monday that it hopes to buy
additional spectrum in government auctions at the end of 2014 and in
2015.
"It's still a priority to get additional spectrum," Chief Technology
Officer Neville Ray told analysts on a conference call to discuss
the deal.
While they said the spectrum was crucial for T-Mobile US, some
analysts noted that the price was steep at a 26 percent premium over
what Verizon had paid for it at an auction several years ago.
Wells Fargo analyst Jennifer Fritzsche said the deal was "very much
not a fire sale" for Verizon. She noted that it would be an
important boost to T-Mobile's network, but said the buyer may have
to pay another $1 billion to put the spectrum to use.
T-Mobile raised $3.8 billion in stock and bond sales in November to
fund spectrum purchases. Chief Financial Officer Braxton Carter said
he would look to debt markets rather than equity markets for any
future spectrum funding needs.
The company will be able to use the additional airwaves to help it
steal customers from rivals such as AT&T, Pacific Crest analyst
Michael Bowen said.
"T-Mobile will now have greater spectrum with which to compete
against all carriers, but we anticipate that AT&T will continue to
suffer the largest impact," Bowen said.
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In a sign of rising competitive tensions between the two companies,
which use the same network technology, AT&T on Friday offered
T-Mobile customers a $200 credit to switch to its service.
T-Mobile said it could offer services as soon as the fourth quarter
using the new spectrum licenses, which cover more than 150 million
people in nine of the top 10 U.S. markets and 21 of the top 30
markets including New York, Atlanta and Los Angeles.
It said the purchase, which requires regulatory approval, is
expected to close around mid-2014.
T-Mobile also said the companies will realign spectrum blocks in
markets such as northern California and Atlanta.
Verizon Wireless had said late last year it would again consider
selling unused A Block airwaves in the 700 megahertz frequency band
that T-Mobile has now agreed to buy.
TAP Advisors was the financial adviser for T-Mobile.
T-Mobile rose 89 cents to $33.17 on the New York Stock Exchange
after the news. Verizon shares edged up 3 cents to $48.45. Sprint
fell 27 cents, or almost 3 percent, to $9.67, while AT&T was up 12
cents at $34.92.
Reuters reported November 19 that T-Mobile was seeking to buy
spectrum from Verizon Wireless, owned by Verizon Communications Inc
<VZ.N> and Vodafone Group Plc <VOD.L>.
(Reporting by Neha Alawadhi in Bangalore
and Sinead Carew in New York; editing by Savio D'Souza, Jeffrey
Benkoe and Richard Chang)
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