In an attempt to enhance its low-band spectrum portfolio, T-Mobile U.S. Inc. (TMUS) has agreed to exchange airwave license with Verizon Wireless in a deal worth $3.3 billion. The fourth largest U.S. telecom carrier has said that it could make further spectrum purchases to improve its network speed. Shareholders welcomed the news as the stock moved up 3.72% on Monday on Nasdaq.
Per the agreement, T-Mobile will purchase some low-band spectrum in the 700 MHz block for $2.365 billion in cash while transferring certain AWS and PCS airwaves worth $950 million, to Verizon Wireless. Both the companies will rearrange spectrum blocks in the northern California and Atlanta regions.
The transaction is subject to the Federal Communication Commission (FCC), Department of Justice and other related regulatory approvals. The companies expect the deal to be finalized by mid-2014.
Low-frequency spectrums are substantially more valuable as these cover more distance and travel well through walls and other obstructions. Post-transaction, T-Mobile will have low band spectrum in 9 of the top 10 and 21 of the top 30 U.S. markets covering 158 million people in cities like New York, LA, Dallas and Washington.
This again clearly proves how crucial and pricier spectrums have actually become over time. Reportedly, Verizon sold the spectrum at a much higher value than the auction price paid several years back.
T-Mobile’s quest for wireless airwave does not come as a surprise as all the leading U.S. carriers are investing a lot of cash to ramp up their spectrum portfolio either through swap deals or by purchasing it from smaller counterparts to support data hungry customers.
Further, T-Mobile is lagging its larger peers like AT&T Inc. (T) and Verizon Communications Inc. (VZ) in LTE deployment as the company has so far covered 209 million people in 273 metros. We believe the spectrum will aid T-Mobile in extending its LTE network reach and tapping customers through its competitive offerings. Recently, the company announced that it will launch Uncarrier 4.0 plan, which will buy out the early termination fees of customers switching from other carriers, thus spurring rivalry among the top guns.
Meanwhile, T-Mobile has become an acquisition target for telecom carriers in the U.S. Softbank, which already owns 80% of Sprint Corp. (S), is eyeing T-Mobile U.S. for around $20 billion. However, the deal might face regulatory challenges from FCC along with competition from satellite provider Dish Network Corp, which is also mulling a takeover of T-Mobile.
T-Mobile currently carries a Zacks Rank #3 (Hold).
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